Nifty Futures vs. Nifty Options in Stock Market: Choosing the Right Instrument for Your Strategy

Nifty Futures vs. Nifty Options in Stock Market

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When it comes to trading in Indian stock markets, the Nifty index is one of the most popular indices. It is a benchmark index of National Stock Exchange (NSE) composed of 50 actively traded stocks from various sectors. Due to its wide representation of the Indian stock market, investors and traders use the Nifty index in stock market as an effective tool to make investment decisions.

In addition to trading the stocks that make up the index, traders also have the option to trade the Nifty index in stock market itself using two financial instruments: Nifty Futures and Nifty Options. Both of these instruments are derivatives of the Nifty index and offer different advantages and disadvantages. In this article, we will discuss the differences between Nifty Futures and Nifty Options and help you decide which instrument is suitable for your trading strategy. Check here what is SIP Calculator.

Nifty Futures

A futures contract is a financial agreement to buy or sell an underlying asset on a future date at a predetermined price. Nifty Futures are contracts that allow traders to buy or sell the Nifty index in stock market at a predetermined price and date in the future. The price at which the futures contract is bought or sold is called the futures price.

The primary advantage of Nifty Futures over Nifty Options is that it offers high liquidity and volume. Since Nifty Futures are actively traded, it is easier for traders to enter or exit trades without the fear of price manipulation or lack of buyers/sellers. Nifty Futures are also traded on margin, which means that traders have to deposit only a fraction of the trade’s total value as margin money to initiate and maintain the position. Check here what is SIP Calculator.

For example, let’s say the Nifty index is trading at 15000. One Nifty Futures contract is worth Rs. 10 per index point, so the contract value would be Rs. 750,000 (150001050). To open a long position, a trader would need to deposit the initial margin, say 10% of the total value, which is Rs. 75,000. If the trader maintains the position, they will need to maintain the maintenance margin, which is lower than the initial margin and is designed to cover potential losses resulting from adverse market movements.

Nifty Futures contracts have an expiry date, which is the last Thursday of the expiry month. Traders can trade the current month’s contract or any of the next two months’ contracts in stock market.

Nifty Options

Nifty Options are contracts that allow traders to buy or sell the Nifty index at a predetermined price and date in the future, but with the option to either execute the trade or let the option expire. In other words, options give traders the right but not the obligation to buy or sell the underlying asset. Check here what is SIP Calculator?

Nifty Options contracts also have an expiry date, which is the last Thursday of the expiry month. Traders have the flexibility to trade three types of contracts – near-month, next-month, and far-month. Near-month contracts expire at the end of the current month, whereas next-month and far-month contracts expire at the end of the next two months, respectively in stock market.

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