Nifty Futures is a futures derivative of the S&P NIFTY 50 stock index of Indian stock market. NIFTY is an index so Nifty Futures Trading involves all the market risks associated with Index futures trading.
Nifty futures trading is for advanced financial traders, because the risks of capital loss are high, and futures trading needs regular attention. One must be willing to lose capital in the quest to make rapid gains. Anyone who paints a rosy picture without telling the risks is dishonest.
So we are telling you right now, before you read further, that Nifty Futures trading can give you losses. You have to be willing to lose money because some trades will surely hit stop losses. But if you stick to your trade with discipline and follow our stop loss and profit booking targets, you will make money with Nifty Futures.
We trade Nifty Futures on delivery basis, and we hold them overnight. We do not do intra-day trading. In principle, our buying and selling is triggered by the Nifty price, and not by how long we have to be in the trade. We let the price (market consensus) give us the direction.
Compared to Nifty options, Nifty futures have some pros and cons. The most important benefit of Nifty futures is that there is no time decay unlike in options where time is constantly running out and thereby eroding option price. In futures there is no time decay and as long as the price remains the same on the index the futures’ value remain the same. Time decay is a big loss maker for options traders and many strategies have to used to fight time decay in options. With Nifty futures, it is straight forward – long or short — and there is not loss of value due to time decay.
However, there is a risk in futures is that the downside risk is technically unlimited. Unlike in options where the risk is limited if you buy options, in the Nifty futures if the Nifty opens gap-down by 200 points due to some global panic while you have a long position, that can cause a loss to your trading capital. Similarly, market can open gap-up while you are short. Therefore, it is important to trade very selectively in Nifty futures are those times, when the trend is clearly in place. When the trend is uncertain, using options may be better. But when the trend is clear, Nifty futures can produce good profits.
Nifty Futures Trading involves the benefits of no time erosion but it involves the risk of unlimited downside in case the direction of the market moves against the futures that you have bought.
In addition, Nifty futures trading needs more capital compared to Nifty options trading for the same amount of profit generation. Becuase Nifty options carry much higher risk than Nifty futures, it is logical that an options trader will gain more than futures trader if the trade is in his favor, but the options trader also faces a much bigger loss than futures trader when the market direction reverses for any reason. The time decay of an option is the worst enemy of an options trader.
In other words, you can say that the futures require higher amount of capital because in options the cost of the option is cheaper for the same target gain but then option also erodes in time and in that sense it’s not something that you can hold on to, whereas in futures you can roll over from month-to-month and as long as the market remains the same you will not lose.
For example, if today the market NIFTY is at 5400 and if I bought a call option for 5500 and if the market remained at 5400 throughout the month and did not move my option will become zero and if I have paid Rs. 5,000 for that option that is gone and becomes zero whereas if I have put Rs. 25,000 to buying one lot or Rs. 40,000 into buying one lot of NIFTY futures at 5400 and if NIFTY remains the same and ends at 5400 I have not lost my money – its still there. Of course the interest component is lost because money is blocked in the future but then if you ignore the interest component for the time being, which is a small component, the value of the future remains the same. It has not deteriorated, and that way you can basically trade futures even when the market is in a range-bound condition where it is not going into either direction with any conviction.
When the market is trading in a range – typical for NIFTY to move 50-80 points up and then again 50 points down and so on – it’s very common on NIFTY because it is an index having various sectors. There are many such days when the market is not taking any clear direction and Nifty futures are very useful to trade those 30-40 point movements in a range-bound market where it will be very difficult to trade with options and they would invariably end up getting killed because of time expiry in options, while futures don’t erode with time, and can trade very well in a range-bound market. And for a market going in a given direction, up or down, futures can be used actively along with options to take an aggressive call position.
We offer NIFTY futures trading tips on this website along with a wide range of strategies that we have found to be good for trading NIFTY futures and the single most important and successful strategy that we have found in trading NIFTY options and futures is that we would use the next month futures and because invariably we are targeting for a time frame of trade which is at least 3 to 7 weeks or 3 to 8 weeks, and that is why we use the next month futures.
If one person has to trade with high volumes then it is advisable to do intraday futures trading, then we can do with high volumes, but otherwise it is advisable to do with the next month futures because then you don’t have to worry about the roll over etc.
So we treat futures as a way of holding NIFTY index on margin, where you have no pressure to square off the position by end of day. We want to repeat that, we see NIFTY futures, as a way of holding the NIFTY index ETF on margin because essentially what we are doing is we are holding the NIFTY and we are holding it on margin because we are paying only 25% of the cost and holding the future so this is important to understand.
So whenever you buy futures think of that as the NIFTY stock itself on margin and then you will get a real picture of what you are doing with it and we are trading for durations of 3 to 8 weeks and these durations involve fluctuations in the market which if you are not comfortable with, then you should not be holding the NIFTY futures for longer durations.
If you want to trade futures on shorter durations like intraday, then we would actually suggest using options and we have a site for that as well. We have found that the options market has a much, much bigger volume and it has continued to grow bigger, and you can trade options on intraday basis and the capital required is much smaller in trading options and you can do the same result that you will do for futures trading while trading options.
If you want to trade for slightly longer durations, let’s say 2-3 weeks or more then there is a clear benefit of trading with Nifty futures because with Nifty options the time decay kills the option whereas in futures there is nothing called ‘time decay’. So if we are able to make a direction call on the market then we should go and buy the future or sell the future, as required, and then if you really want to mitigate the risk then you can buy a counter position in an option – that is in case you want to mitigate.
Often we just buy just the amount of the future that we want to do and the key part to note is our NIFTY futures trading tips and style – trading style, is not intraday. Our futures trading style is of multiple weeks at a given time. So we would have a futures position on even a week. But commonly we square-off our position by Friday and start a new position by Monday, but it is surely not intraday so if you are looking for intraday futures trading then we are not the right service for that because we have not found it fruitful to trade with a large amount of capital on an intraday basis.
When the capital deployed is higher and risk profile is same, which is in the case of multiple days of multiple week duration, futures is a good option or the good alternative to trading options and in fact trading futures along with a hedge using options is one of the best strategies.
So we can help you with suitable futures trading strategy, whatever your capital requirement or capital allocation is and whatever your risk/reward are, and for each case we will be able to suggest something and so you can send us an email with your query and we will reply to that and if you are interested in using our Trading Tips and Guidance then we can help you.
We charge a nominal fee for sharing our Nifty futures tips because we are also traders and we track the Nifty closely on daily basis. And we are constantly monitoring global markets as well, and we will be happy to help you in trading better.
This website also has our performance on Nifty futures trading. You will observe that our trades are mostly spread over a few days per trade because once Nifty takes a direction, it does not finish in one day.
So those were our Nifty Futures Trading tips and strategies and we look forward to helping you make more profits with Nifty Futures!