Nifty futures are derivative contracts that allow investors to buy or sell the Nifty 50 Index at a predetermined price and date in the future. These futures contracts derive their value from the Nifty 50 Index.
Nifty futures work on the principle of price speculation. Traders can take long positions (buy) if they believe the Nifty 50 Index will rise in the future or short positions (sell) if they expect it to decline. The value of the Nifty Futures contract is directly proportional to the value of the Nifty Index. That is, if the value of Nifty Index increases, the value of Nifty Futures will also go up and vice-versa. The Nifty Futures have a maximum trading cycle of 3 months. After the contract expires, the profit or loss is determined by the difference between the contracted price and the actual price of the Nifty 50 Index.
Nifty 50 is the underlying index for Nifty Futures. It is an index that is comprised of the top 50 companies on the National Stock Exchange (NSE).
The value of Nifty Futures is derived from the underlying Nifty index, i.e., it moves in sync with the index. The price of Nifty Index will form the base for the value of Nifty Futures. Nifty Futures and Nifty Index can be traded in the market at different prices, this difference is called as Spot-Future parity. Nifty futures prices incorporate the ‘cost of carry,’ which accounts for the financing costs of holding the underlying stocks. The cost of carry includes interest rates, dividends, and time to expiry.
The margin requirement for trading Nifty futures varies based on the volatility and risk associated with the contract. It is expressed as a percentage of the contract value and is typically lower than the actual contract value. The exchange and brokers set the margin requirements, which may change based on market conditions.
The lot size of Nifty Futures contracts is 75 units. It means that one can trade in Nifty Futures contracts in multiples of 75.
1: Open a demat and trading account with ICICI Direct. 2: Login into your iDirect account. 3: Click on Nifty 50 under F&O to place a futures order. 4: Alternatively, you can also use other products offered such as Flash Trade, One Click F&O, and Easy Options to trade in Futures.