NIFTY Future Share Price

What Are Nifty Futures?

Nifty futures are financial derivatives, the value of which is derived from the future value of the Nifty 50 index. The 50 large-cap companies listed in the National Stock Exchange of India make up this index. It is a contract with a pre-defined date of expiry and is traded on the derivatives segment of the NSE; therefore, this avenue is quite popular for speculation into the market movements or hedging of an existing position.

The Nifty 50 index is more or less a benchmark representation of the Indian stock market, reflecting the performance of the whole market. The Nifty futures contract allows one to take positions in a diversified portfolio of stocks without actually buying all the individual stocks, thus facilitating easier participation in the market.

How Nifty Futures Work

Speculation of the future price movements in the Nifty 50 index is how Nifty futures work. If one feels that the index is going to go up, then he can take a long position by buying it. Similarly, in anticipation of a fall in index values, he may sell, which is called a short position.

The profit/loss made through trading in Nifty futures depends on the difference between the contracted price and the actual value at expiration. As a contract approaches its expiry date, its price generally converges towards the spot price of the Nifty index, dependent on several factors such as interest rates, dividends, and market sentiments.

Advantages of Trading in Nifty Futures

Several advantages make trading in Nifty futures worth the time for investors. The foremost is diversification, whereby trading in these contracts opens exposure to different sectors represented by the Nifty 50 Index, thus spreading the risk.

Another important facility that the investors have is that of leverage, where, for lesser capital outlay due to lower margin requirements compared to buying individual stocks, traders control bigger positions. Nifty futures also offer liquidity whereby entry and exit from a position can be comfortably carried out without having a significant adverse impact on the market prices. They are also effective hedging instruments wherein the investor can hedge portfolios against losses in falling markets.

Strategies for Trading Nifty Futures

Effective trading strategies for Nifty futures will not only maximize one's profit but also control the potential risks involved. A very common strategy is trend following, wherein a trader identifies the prevailing trend of the market and always goes long in a bullish condition or short in a bearish trend.

Breakout trading involves entry upon the index's decisive crossing over major resistance or support levels. Other strategies are pairs trading - a simultaneous buying and selling of correlated assets to profit from price divergence and event-based trading, where a trader makes use of the volatility caused by significant economic announcements or events. Furthermore, there is option hedging to reduce the potential risks of the inopportune price movements of Nifty futures.