Advantages of Trading in Nifty Futures and Nifty Options
A lot of people ask this… “Why to trade in Nifty Futures and Options when there are more than 3000 stocks to trade”. There are some very distinct advantages of trading in Nifty Futures and Options. Some of this is given below:
- Liquidity – Nifty Futures and Options are one of the most liquid contracts in the Derivatives Section. The more liquid a contract is, the more difficult it is to manipulate it. Hence, it is a lot more safe to trade in Nifty Futures and Options than in Stock Futures and Options. Stock Options, in particular, can be very illiquid and we would not advise anyone to trade in that.
- Leverage – At 6000, 50 quantities of Nifty would actually cost Rs. 3,00,000 to Buy. However, almost all brokers offer6 to 10 times leverage to trade in Nifty Futures. Hence, the actual amount needed to buy 50 quantities or 1 lot of Nifty Futures is approx. Rs. 30,000 to Rs. 35,000 only. If you are able to trade and earn even 7 points on Nifty on an average on a daily basis, that means a return of Rs. 350/- or 1% on daily basis or 20% monthly returns or 240% yearly return on your deployed capital. That is the power of leverage.
- Trade Both Sides – By trading n Nifty Futures and Options, you can earn both ways, i.e., when the market is moving up OR when it is moving down.
- Low Brokerage – Most brokers offer a lower brokerage on Nifty Futures and Nifty Options than on Stocks futures and Options.
- Less Wild Swings – Individual Stocks can show wild swings due to News, Rumors etc. However, since Nifty is a representative of 50 stocks, any wild movement in one particular stocks does not produce wild movements in the Nifty. It is easier to study and speculate about the direction of Nifty than Individual stocks as there is less effect of News etc. on the broader market as such.
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