What is Nifty?
A good understanding of how the stock market works is
incomplete without knowing about NSE and BSE. These are the most essential
pillars that support the Indian stock market and keep it functional.BSE is the bombay stock exchange and NSE is the national stock exchange. Each of these
stock exchanges has introduced their own stock index. The stock index of BSE,
which is the oldest stock exchange of our country, is Sensex. The major stock
exchange that NSE introduced is called Nifty.
How to invest in Nifty?
As
we understand now, the nifty is a benchmark of the indian stock market
index. Nifty comprises of around 50% of NSE’s complete trade stock. It is
an indicator of the performance of NSE as a whole, and by extension, the Indian
economy too. If nifty is going upwards, it signifies that the whole market is
moving upwards.
Investing
in NSE is not the same as making an investment in nifty. If you invest in the nifty index, it gives you the opportunity to enjoy the growth and reap benefits
from the entire bunch of 50 stocks. There are numerous ways in which you can
invest in nifty.
1. Spot Trading- You can buy the nifty script, which is the most
simple and straightforward way of investing in nifty. This is the equivalent of
buying the equity shares of various listed companies. Once you become an owner
of the stock, you can reap the benefits from various price movements of the
index, which result in capital gains.
2. Derivative Trading- Financial contracts that obtain their value
from an asset that is underlying are called derivatives. These assets could be
anything- indices, stocks, currencies or commodities. The parties involved
agree on a future date to settle their contract. Profit is made by speculating
on the value the underlying asset will attain in the future. To trade directly
in the nifty index two kinds of derivatives are available- futures and options.
- Nifty
Futures:In a future contract the buyer and seller
agree to buy or sell the nifty contract on a future date. During the
period of the contract, you can sell it and make a profit if you see that
the price has gone up. If the price goes down, you can wait it out till
the date of settlement.
- Nifty
Options: In a contract of this type,
the buyer and seller agree upon buying and selling the Nifty stock in the
future, at a price they decide upon in the present. The buyer of this
contract pays a sum as premium and obtains legal rights to buy or sell the
Nifty share in the future. But, this is a right, and not a compulsion, so,
the buyer can choose to not take action if the price is not favorable to
him.
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