FOR LIVE MARKET TRADING TIPS CALL OR
Nifty futures is a common indicator of
trading in the market as a whole, as the nifty is fairly representative of the
market in particular and the economy in general. Nifty futures are essentially
futures contracts on nifty. The minimum lot size for the nifty is 75 units,
bringing the lot value to just over Rs.7.50 lakhs. What are the nifty futures
trading tips and what are the nifty futures trading techniques? Let's
understand some points to remember that will help us trade nifty futures
intraday and longer term.
Check the futures spread over spot before trading
Futures are usually traded with a spread above
the spot price. Under normal conditions, the monthly spot rate spread is
determined by the current cost of financing. It's also known as the carry cost,
and futures typically trade at a premium. There are two things to remember
here. Do not buy nifty futures when they are at a high premium to the spot
index as this could be a case of overvaluation and over-optimism. Also, do not
buy if the nifty futures are being bought at a discount as this could be a sign
of aggressive futures selling. Understand the logic of the spread before
trading nifty futures.
This is a leveraged position and you must treat it accordingly
Skilled futures are leveraged like all futures
positions. If you buy a lot of Nifty in the next month, your margin will be
around 10% for normal trades and 5% for intraday trades. This means that
you get 10x leverage on a normal trade and 20x leverage on intraday trades.
This works both ways. Leverage means your winnings can be multiplied, but
losses can also be multiplied. Therefore, any trade in nifty futures must be
done with strict stop-loss and profit targets.
Check data on open interest before taking a position
It always pays to do some scientific data
analysis before taking a nifty futures position. A quick look at nifty futures
open interest and its accumulation trends will give you an idea of whether open interest
is building up on the long or short side. You can get a more informed view of nifty's direction.
Avoid getting in a liquidity trap
Liquidity is never a major challenge for the nifty futures as it is one of the most liquid contracts, but there are
occasions when the nifty futures can fall into your liquidity trap. First, on
the expiry date, you will typically find that nifty futures volume disappears
once the rollovers are essentially complete. Also, in a market that is falling
very sharply, spreads can widen, significantly increasing your risk when
trading nifty futures.
There are multiple margin implications
Whether you are buying nifty futures or selling
nifty futures, it is a linear position as it can result in unlimited gains and
losses for both sides. While stop losses are a must when trading Nifty, one
must also understand margins. First, there is an initial margin that you pay
when entering into the position, which includes VAR margin and ELM margins. Now
it is mandatory for brokers to collect these two margins and ELM is no longer
optional. Second, you must pay daily MTM (mark-to-market) margins based on
price movement. These affect the allocation of capital for you.
Beware the overnight risk in Nifty
futures
Even if you set stop
losses during the day, these orders will not cover your overnight risk. For
example, if you are long Nifty futures and due to a fall in the Dow, the Nifty
falls 200 points on the open, what do you do? Stop losses don't work and you
are exposed to overnight risk in Nifty futures.
Understand the trade from the counterparty perspective
This is an interesting aspect of Nifty futures
trading. When you buy Nifty futures there is another party selling and the same
logic applies when you sell Nifty futures. The other party could be a trader or
a hedger, and the open interest data gives you the insight you need. While
you're usually driven by your view of the Nifty, it's always worth
understanding the opposing view as it can give you more clarity into your Nifty
view. Here are 8 things to remember when trading Nifty Futures.