9.1 – Basics of the Index Futures
Within the Indian derivatives world, the Nifty Futures has a very special place. The ‘Nifty Futures’ is the most widely traded futures instrument, thus making it the most liquid contract in the Indian derivative markets. In fact you may be surprised to know that Nifty Futures is easily one of the top 10 index futures contracts traded in the world. Once you get comfortable with futures trading I would imagine, like many of us you too would be actively trading the Nifty Futures. For this reason, it would make sense to understand Nifty futures thoroughly. However before we proceed any further, I would request you to refresh your memory on the Index, we have discussed the same here.
I assume you are comfortable with the basic understanding of the index; therefore I will proceed to discuss the Index Futures or the Nifty Futures.
As we know the futures instrument is a derivative contract that derives its value from an underlying asset. In the context of Nifty futures, the underlying is the Index itself. Hence the Nifty Futures derives its value from the Nifty Index. This means if the value of Nifty Index goes up, then the value of Nifty futures also goes up. Likewise if the value of Nifty Index declines, so would the Index futures.
Here is the snapshot of Nifty Futures Contract –
Like any other futures contract, Nifty Futures is also available in three variants – current month, mid-month, and far month. I have highlighted the same in red for your reference. Further, I have highlighted the Nifty Futures price which at the time of taking this snapshot was Rs. 11,484.9 per unit of Nifty. The corresponding underlying value (index value in spot) was Rs. 11,470.70. Of course, there is a difference between the spot price and the futures price, which is due to the futures pricing formula. We will understand the concepts related to futures pricing in the next chapter.
Further, if you notice the lot size here is 75. We know the contract value is –
CV = Futures Price * Lot Size
= 11484.90 * 75
= Rs.861,367/-
Here are the margin requirements for trading Nifty Futures; I’ve used Zerodha Margin Calculator to get the margin values –
| Order Type | Margin |
|---|---|
| NRML | Rs.68,810/- |
| MIS | Rs.24,083/- |
| BO & CO | Rs.12,902/- |
These details should give you a basic overview of the Nifty Futures. One of the main features of Nifty Futures that makes it so popular is its liquidity. Let us now proceed to understand what liquidity is and how one would measure it.
9.2 – Impact Cost
You would often hear the term ‘liquidity’ while trading the markets. Liquidity is the ease at which one can buy or sell a particular stock or futures. If a stock is highly liquid (read it as very easy to buy/sell) then it would attract seasoned traders to trade in large quantities at ease, without really affecting the stock prices. A highly liquid stock/contract invariably attracts a lot of institutional interest as well. Besides if stock/futures is highly liquid then it usually translates to lesser volatility. Most importantly, if the stock is liquid then placing a ‘market order’ is hassle free.
Let us take up the example of MRF Limited to understand liquidity. Assume a foreign institutional investor intends to buy 5000 shares of MRF Limited. As you may know MRF Limited is probably the most expensive stock (in terms of price and not valuation) in the Indian markets. MRF stock is currently trading at Rs.38,351/- per share. Therefore buying 5000 shares at this price would translate to a transaction worth around 20 Crs (38351*5000). Do note a transaction of 20 Crs is not really a large one for a typical Foreign Institution. Anyway given that they want to buy 5000 shares let us look into MRF’s liquidity in the market. Here is the snapshot of MRF Limited’s order book / market depth as taken from NSE India website –
If you wish to buy large quantity of shares, then you need to look at how many shares are being offered in the market. As you can see from the snapshot above there are only about 4313 shares in the market (highlighted by blue arrow). Clearly the number of shares in the market is lesser than what is required, hence the MRF counter is considered shallow or illiquid. Liquidity can also be measured by looking at the bid-ask spread and estimating the impact cost. Knowing about the impact cost is particularly helpful while placing a market order.
Impact cost is the loss associated by executing a ‘round-trip’ trade. The loss is expressed as a percentage of the average of the bid and ask price. Round-tripping is an instantaneous arbitrary trade you carry out by buying at the first best available sell price and selling at the first best available buy price. Let us execute this on MRF (please refer to the order book snapshot above) –
Buy Price – Rs.38,364.95
Sell Price – Rs.38,266.25
So if I were to do a round trip, I would clearly lose money on it. In fact, all round-trip trades result in a loss. The loss, in this case, would be –
= 38,364.95 – 38,266.25
= Rs. 98.7
Further, the average of bid and ask is calculated as follows –
= (38,364.95 + 38,266.25) / 2
= Rs.38,315.60
Hence the impact cost would be –
= Round Trip loss / Average of bid-ask spread
= 98.7 / 38315.6
~ 0.3%
So how do you use this information? Well, it simply means if you were to place a market order to either buy or sell the stock, you are likely to lose 0.3% due to impact cost. This may not always be true but you need to be aware that based on the number of shares you wish to transact in, you are likely to lose about 0.3% owing to impact cost while placing a market order. Next time you call your broker to buy or sell a stock at market, the price you see on your screen and the price at which the trade executes may vary, do remember this is attributable to the impact cost!
Now a 0.3% loss due to impact cost is extremely high. To give you a perspective, let us run through the same exercise on Nifty futures –
Price at which you can Buy = Rs. 11,484.95
Price at which you can sell = Rs. 11,484.00
Round trip Loss = Rs. 0.95 (11484.95 – 11484)
Average of Bid Ask = (11484 + 11484.95)/2
= 11484.47
Impact Cost = 0.95 / 11484.47
= 0.0082%
This means if you buy or sell nifty futures at market price, you are likely to lose just about 0.0082%. Contrast Nifty’s impact cost of 0.0082% with MRF’s impact cost of 0.3% and you will know the importance of liquidity. The few key messages that I want you to take away from this discussion are these –
- Impact cost gives a sense of liquidity
- The higher the liquidity in a stock, the lesser is the impact cost
- The spread between the buying and selling price is also an indicator of liquidity
- Higher the spread, the higher the impact cost
- Lower the spread, the lower is the impact cost
- Higher the liquidity, lesser the volatility
- If the stock is not liquid, placing market orders is not a great idea
Considering Nifty Futures is the most liquid contract in India, it is safe to set 0.0082% as a benchmark for impact cost. Going by this, MRF’s 0.3% is way higher than Nifty’s impact cost hence it is right to say that MRF is highly illiquid.
You may also be interested to know that besides Nifty Futures there are few other future contracts that are quite liquid in the Indian markets such as the Bank Nifty Futures, Reliance Industries, Tata Motors, SBIN, Infosys, TCS, ITC, DLF, Cipla etc. Maybe you can calculate the impact cost for a few of these futures contracts to get a sense of their liquidity.
9.3 – Why trading Nifty makes sense
As you know the Nifty Index is a basket of 50 stocks. These stocks are selected to represent a wide section of the India economic sectors. This makes Nifty a good representative of the broader economic activity in India. This naturally means if the general economic activity is going up or at least expected to go up then Nifty’s value also goes up, and vice versa. This also makes trading Nifty Futures a much better choice as compared to single stock futures. There are many reasons for this, here are some –
- It is diversified – At times taking a directional call on a single stock can be a tough task, this is mainly from the risk perceptive. For example, let us just say I decide to buy Infosys Limited with a hope that the quarterly results would be good. In case the results don’t impress the markets, then obviously the stock would take a knock and so would my P&L. Nifty futures, on the other hand, has a diversified portfolio of 50 stocks. As it is a portfolio of stocks, the movement of the Index does not really depend on a single stock. Of course, occasionally a few stocks (index heavyweights) can influence Nifty to some extent but not on an everyday basis. In other words when you trade Nifty futures you completely eliminate ‘unsystematic risk’ and deal with only with ‘systematic risk’. I know these are new jargons being introduced here, we will discuss these terms in more detail at a later stage when we talk about hedging.
- Hard to manipulate – The movement in Nifty is a response to the collective movement in the top 50 companies in India (by market capitalization). Hence there is virtually no scope to manipulate the Nifty index. However the same cannot be said about individual stocks (remember Satyam, DHCL, Bhushan Steel etc)
- Highly Liquid (easy fills, less slippage) – We discussed liquidity earlier in the chapter. Since the Nifty is so highly liquid you can literally transact any quantity of Nifty without worrying about losing money on the impact cost. Besides, there is so much liquidity that you can literally transact any number of contracts that you wish.
- Lesser margins – Nifty futures require much lesser margins as compared to individual stock futures. To give you a perspective Nifty’s margin requirement varies between 12-15%, however individual stock margins can go as high as 45-60%.
- Broader economic call – Trading the Nifty futures requires one to take a broad-based economic call rather than company specify directional calls. From my experience, doing the former is much easier than the latter.
- Application of Technical Analysis – Technical Analysis works best on liquid instruments. Liquid stocks are hard to manipulate, hence they usually move based on the demand-supply dynamics of the market, which obviously is what a TA mainly relies on
- Less volatile – Nifty futures are less volatile compared to individual stock futures. To give you perspective the Nifty futures has an annualized volatility of around 16-17%, whereas individual stocks like say Infosys has annualized volatility of upwards of 30%.
Key takeaways from this chapter
- Nifty Futures derives its value based on the Nifty Index in spot, which is its underlying
- At present, the Nifty futures lot size is 75
- The Nifty futures is the most liquid futures contract in India
- Just like other future contracts, Nifty Futures contracts are also available with three different expiry options (Current month, Mid Month, and Far Month)
- A round trip trade is an arbitrary quick instantaneous trade which involves buying at the best available sell price and selling at the best available buy price
- A round trip trade always results in a loss
- Impact cost measures the loss of a round trip as a % of average of bid and ask
- Higher the impact cost, lesser the liquidity and vice versa
- When you place a market order to transact, you may lose some money owing to impact cost
- Nifty has an impact cost close to 0.0082%, which makes it the most liquid contract to trade
I read in todays newspaper that yesterday’s index rally was based on short covering. As far as i know you cannot carry shorts in the cash market overnight. it meant all those people who are short on the market in F&O squaring off their positions FnO is just an instrument that derives its price from EQ, I am wondering how FnO drives the market and not its underlying(EQ)?
It is true that the spot market drives the derivatives market… but at time for brief periods the other way round can happen as well!
pls explain the reason and method how F & O drives the underlying index.
A derivative instrument is structured based on an underlying, hence it moves according to the underlying. Have explained the basics here – http://zerodha.com/varsity/chapter/background-forwards-market/
Hi karthik,
sorry for bothering you again on this concept.I am having difficulty in understanding the concept.Suppose there is short built up in nifty futures.Market participants who are short in nifty futures realise that bearish outloook is no longer visible .So they square off their short positions in nifty futures.which moves nifty futures in upward direction.Here all the activity is taking place in nifty futures.So how it leads to rally in underlying cash market based nifty index.Is it sentiment?Pls guide.
Yes, sometime and for a short duration the derivatives market can influence the spot. However it cannot be sustained. Such situations are called short covering or the long unwinding.
How do you infer at EOD by looking at futures data whether (a) there is short build up or (b) short covering or (c) long buildup or (d) long unwinding ? Thanks
There is no hard a fast rule for this, but generally…
1) Price increase after few successive sessions of down trend is considered short covering
2) Price decrease after few successive sessions of up trend is considered profit booking or long unwinding
hi kartik, is it prudent to attend a training on TA. if yes, can you suggest a place.
Please don’t spend money on it because there are no good courses available in India. Most of it is waste. You have all things needed in Varsity’s TA module. Go through it in detail, if you have questions post them here, we will be more than happy to give you a quick response and help you tru it.
Hi Karthik,
I have recently started trading futures and i found these modules very impressive. I appreciate your effort in writing these again.
Thanks alot.. 🙂
Glad to know that, and I hope you will like the up coming modules as well 🙂
Kindly clarify:If i am placing the limit order, it’s not necessary to look after the impact cost. Can I choose any NSE50 future contract? Whether All the NSE 50 are liquidity in case of F&O?
Yes, when you place limit no need to worry about Impact cost. Also all Nifty 50 are liquid enough.
Dear Sir, When will be the next chapter is uploaded and when all chapters on Futures are schedule to finish.
regards
I guess futures module will be completed by this week. Looking forward to Options module from next week on wards. Please stay tuned for more. Thanks.
SIR,CAN WE HEDGE FUTURE CON (BUYING ONE MONTH,SELLING ANOTHER MONTH FOR SOMETIME BY USING TECH ANALY CHECKLIST AS U MENTIONED ONLY HIGHBETA FUT THE PROFIT EXPECTED WILL BE VOLTILITY&TIMING&LOW MARGIN PLS CLRIFY
Yes, you can do that. In fact we have discussed about spread in chapter 10, which will be uploaded in a day or two. Request you to kindly look through the chapter when done.
I have noticed that at times nifty futures transactions involving large qty.like 1 lac nos take place
wheras the buy/sell qty of the top 5 quotes do not reflect any large nos. How does it happen? What is the relationship between disclosed and undisclosed qty.?
When you opt for a disclosed quantity, only a part of the order is displayed and the rest will be hidden from the market. The top 5 bid-ask represents the ‘current’ order book which changes minute to minute. The large transaction you are referring to must be end of day cumulative value.
when a buy price and sell price matches a transaction takes place. How does the software system
distinguishes whether it is a buy transaction or a sell transaction.
How are buy signal and sell signal generated by the software system?
Well when you place an order, the first requirement is to ensure you specify if the order is a buy or sell. Suggest you read through this chapter which will give you insights into a typical trading terminal – http://zerodha.com/varsity/chapter/the-trading-terminal/.
Sir reply
Sorry for the delay, have posted my reply.
Hi Karthik,
If I want to trade Nifty futures, and let us say my analysis needs past 6 months of continuous data, where should i conduct my anaysis as the contract expires every month? If Im not wrong, it has to be done on the underlying, ie. NIfty spot,right???
Data providers usually collate the current month futures data and give it out as continuous data stream. So when you look at the futures data its appears continuous and analysis friendly. However I personally prefer to do all my analysis in spot and then execute trades in futures.
That’s helpful sir. Thanks.. 🙂
🙂
Hi Karthik,
one query on this issue, if i am doing my analysis on spot, then my target and stoploss (and subsequently risk:reward)is also on spot,how do i match that with the futures data?(which will be slightly different)
So if the trade requires you to buy futures when the spot is at say 8350 (spot) just go ahead and buy the futures at whatever price it is in…and if your target is 8370 in spot, sell the futures at that particular level. Track the spot execute in futures.
t u
Hi Karthik…in future modules, will you be taking us through the “how to” process of back-testing?
Back testing will not be a part of Futures module, perhaps in the “Trading Strategies’ module.
SIR, WHEN WILL BE REMAINING CHAPTERS ARE UPLOADED .
THANKS & REGARDS
We just have 2 more chapter in Futures trading, will try and wrap it up this week.
sir ,when trading intradayits prctically not possible to check all checklist as u suggested(i know if we follow we never loose)it will be better if we hav r1,r2,s1,s2 by default (bye the bye when are we getting) in PI,so atleast we will hav idea of what we r doing& in busy intraday how its possible to draw for every script someties(however good we r)we go emotionally&struck.though trading is my passion&livehood iam still unable to trade neatly it looks very easy with (h work,determination for 2yrs) but e day same story,no loss,no gain only repairing strucked futere stocks for how many yrs i will be repairing is it my fault(trading without robust plan,if even i know manythings foolishly,impatiently trading emotionally)causing pain is it fair to continue (however POSITIVE I AM )&fighting all life with probability pls clarify heartily
Narsimha – Can you become a good doctor overnight? Not possible right? Likewise to be a consistent trader you need to put in a lot of efforts. You need a plan and you need to stick to it no matter what happens. From what I see, you have spent the last 2 years trading with no success. Request you to spend the next 3 or 6 months by sticking to the rules and generally the checklist that we have discussed in the TA module. Also if you have no success in intraday trading try positional trades for few days. You need to be mentally prepared to put in the necessary hard work. Good luck and I wish you all the very best.
Sir, Thanks for your reply, Iam a positional trader, I am exiting some good fundamental stocks like Yes bank, Glenmark, Ultra Tech when they are hitting my set stop losses. Instead of coming out of the trade Is it right to hold or continue by averaging them near their 50 EMA for better returns once the stock got bottomed out and take reversal/turn around. Pl. advice.
thanks & regards
When you initiate a trade you need to have a trade set up, which defines your entry price, target price, stoploss price, and most importantly the reason for trade. If the trade hits the SL, then it is always advisable to exit and look for another opportunities. Also a good fundamental stock should be taken as a long term investment. Don’t trade on them. Of course technically you can trade the stock you have invested in but that gives raise to biases, which will influence your long term thinking. Best is to separate investment stocks and trading stocks.
sir,thanks for advice.i will try swing trding with ur check list i think i should be little disiplined,patient&use all skills what ihav learnt all these yrs,what do u say
Hopefully that should help, good luck with that.
Hi Karthik,
I had received an email from Zerodha regarding the site traderscockpit
This site offers some tools and they also offer training courses as well and Zerodha
seems to have some tie up with them for offering tools to its customers at special rates.
Do you know anything about their Technical Analysis course? They offer their workshop in Bangalore & Chennai.
I’m not sure about their courses Varughese….it maybe worth it. However before you spend your hard earned money on a ‘course’ please read all the stuff that we have put up on Varsity. Why do you want to spend money when everything is available to you on Varsity for free?
Hi sir can I creat this type position in nifty future
example- 8000 fut buy 1lot
and short 2 lot otm 8500 call option @ 50
This type trade good or bad trade
Hi Karthik,
Thanks for all the information. Its been very useful. I have few basic qus:
If I trade in large quantities of futures midcap, will there be enough liquidity to find buyers? because in NSE site I see trading volumes of top 20 stock futures as 7000 or 8000?
Also I hold till expiry date, till say 3:00 pm will there be enough buyers?
If you hold till expiry the exchange will settle the trade for you, so no worries.
Generally the liquidity is on the lower side when you go outside the NIFTY 50 basket. So this could be detrimental for trading in really large quantities.
Hi Karthik,
Thanks for your reply! I have a couple of doubts (may be silly)
LT futures in NSE,
1. The traded volume is 6,555. Is it units or lot? is it 6555*250 lots? because in the order book the buy qty is 1,87,750 and sell qty is 3,34,250? is it 6555 units are traded?
2. Also what can one infer is there are more units sold than bought? is it a significant point to be noted before entering trade?
Kindly advice!
The traded volume is in lots…so if it reads 6555, then you multiply it with lots to get the number of shares…in this case it would be
=6555*250
=1638750
This many shares were traded @ lets say Rs.1750 per share…therefore the Traded Value will be…
=1638750 * 1750
= Rs.286.78 Crs.
The order book is a reflection of the demand-supply for ‘this’ moment..so it will never be balanced. For example if for ‘this’ moment there are more buys than sells…it only means there is more demand….but that can change the very next moment. For this reason it is really tough to interpret the order book information and derive some meaningful information. However, if you are developing a trading strategy (maybe an algo) the orderbook matters as a lot depends on the current demand supply situation.
When we are doing technical analysis on Nifty spot chart.How does it help in predicting movement of Nifty because Nifty isn’t actually traded in spot, it is only a derivative itself deriving its price from 50 stocks.Technical analysis works on supply and demand dynamics but there is no actual demand and supply for Nifty in spot market.Does the chart of Nifty spot represent the cumulative demand and supply for the 50 stocks? I hope it makes sense.:)
And to follow up isn’t Nifty futures a derivative of a derivative(Nifty spot)? 😉
Well, you answered it yourself. Yes, the demand supply is what really matters…Nifty 50 shows the cumulative demand and supply of the 50 large companies in India and therefore it moves. The Nifty 50 futures is a derivative on this…so think of it as a derivative on derivative 🙂
Thanks for the reply.
Also what does the volume on Nifty spot chart imply? For eg: volume was 0.71 Billion on 17april.
I suppose this volume refers to the collective volume of all the Nifty 50 scrips for the given day. Please note, this is just my guess…I’m not really certain about this, need to clarify myself.
While working on the chart of spot Nifty,how to adjust the target and stop loss for the futures as the price is different for both ?
I usually ignore the futures price. So Nifty spot suggests a buy at 8650, I will go ahead and buy the futures even if its trading at 8700.
When doing positional trades in futures which order is to be placed and how to place stoploss for positional trades since all orders with stoploss(bracket, cover, MIS) are for intraday purposes only.
I would suggest you read about Support & Resistance to identify stoploss levels. Here is the link to read about it – http://zerodha.com/varsity/chapter/support-resistance/
No,I mean which order is to be placed while doing positional futures trading in which stoploss can be specified.(NRML mode).?
For positional futures position (as in if you want to carry the same overnight) always use NRML. For intraday trades use MIS, BO, or CO where you can alter the SL.
how i can see nifty live chart in PI ??
Please highlight Nifty Futures on your market watch and press ctrl+c, this should open up the chart.
When I opt for for a disclosed quantity of say 10% only and I put order of 10,000 quantity, I assume that only 1000 shall be seen in the bid/ask table. But can NSE market making program or brokers see the full quantity? Or is this hidden from all (computers, broker terminals, etc)?
Probably NSE and your broker may know this but certainly not other market participants.
when we can buy in the money options for a lot lesser than the margin requirement for futures contract, why are futures so popular.
which is a better trading vehicle options or futures?
Nutan – Deep ITM options do have limitations. When you buy a ITM you have to ensure it remains ITM…if market cracks (in case of CE) then ITM may becomes ATM or OTM. However futures will remain futures. Hence ppl prefer to trade futures. Another challenge with deep ITM options is liquidity especially if you intend to trade large qtys.
Sir suppose I m selling nifty on intraday or for a week then I have to buy also for settlement.
If you short you can continue to hold the short position till expiry or choose to square off (buy back the contract in this case) the trade as and when you wish.
what exactly does the order book convey? are those the quantities that are available to buy/sell from different participants ?
When you place an order on amazon or flipkart, at a later point you can always go back and check for the status right? Similarly the orderbook in your trading terminal. When you place an order to buy or sell a stock the record of that is maintained in your order book. However the orderbook is valid for the day. You cannot see today’s order book t’row. So when you place an order for a transaction you can visit the order book to change the price, quantity etc…of course once the order is fulfilled you cannot modify your order book.
Hello Karthik ,
First of all, hats off to you for all the good work you are doing. I used to trade earlier based on instinct and FA before I read your module on TA. After which, I started using TA and which proved really helpful. And after reading your module on Futures, carried out my first trade today in Nifty Futures which turned out to be quite profitable. Thanx to you.
But I got a small doubt. You said that Nifty index can’t be manipulated. I agree with that. But what about the Nifty Futures contract? Suppose someone places hypothetical Buy/Sell orders in large numbers which he obviously doesn’t want to get executed with the only intention of increasing the Bid/Ask quantity resulting in manipulation of Demand /Supply. Will that not result in manipulation of the price of the futures contract?
I assume that if there are more buyers than sellers, then the sentiment is bullish and vice versa. Please correct me if I’m wrong.
Thanx and Regards,
Sunil.
Sunil, I’m really glad to know this, hope you continue to have more success.
Yes, traders can place large trades with an intention to manipulate the bid ask…but do remember this wont affect the price. The price is affected only when a trade is struck. So if someone is placing an order just to cancel it very soon, then it would not matter to the price.
Thanx for the reply.
I agree with what u r saying. But what if some big fish has bought a huge lot (maybe 1000 lots or more – Accumulation ) at say 8500 and then keeps buying 1 lot each at 8500.10/20/30/40/50 and so on thereby moving the price up. And when he has achieved the profitable price which is way above the price that he bought the huge lot at , he starts selling slowly in small lots and books profit (Distribution) . Can we call this market manipulation and can’t this happen in Nifty Futures?
Regards,
Sunil.
I get your point. This may happen in small illliquid contracts…but not possible with large contracts like Nifty, Infy, RIl etc. Just to give you a perspective to trade 1000 lots of Nifty you just need 1.7Cr in margin amount…this is not a big amount for a ‘big fish’ :). Hence it always makes sense to trade large liquid contracts.
Ok.. Got it… So I can safely assume that manipulation of a Nifty Futures contract is not gonna be easy considering its liquidity…. 🙂
Thanx for the reply. Keep up the good work… U rock man …!!!!
Sir, I wish to know, if I can place 1000 lots of nifty options at one go in a single order ??
I think there is a cut off at 200 lots per order, so you may have to place 5 orders to get an exposure to 1000 lots. Also, as a retail client, there is a cut off at 5% of open interest.
Hi Karthik,
Why is price of MRF (in the given snapshot) increasing, when the total sell quantity is greater than the total buy quantity. Should’nt price decrease when supply is greater than demand? I know i am missing something, just wanted to know what i am missing.
One more query, a bit unrelated, during trading hours i have seen that many a times the total volume traded value decreases, it baffles me. why is that decreasing and increasing, should’nt it only increase?
Rajdeep – the snapshot has captured that particular instance’s market depth. Market depth keeps changing based on demand supply. Regarding the traded volume, are you sure? Its a cumulative number and only increases as the day progresses.
Yes karthik you are right, I got confused, Total volume only increases, it is total bid quantity/ total ask quantity which sometime decreases, it may happen due to order cancellation i guess.
I want to understand in a better mannner how can i reasonably predict the price from the market depth window, what do you advice?
Predicting price from the market dept window is difficult. Its like looking at a debit card and guessing how much money is there in the bank account 🙂
sir,
today i heard SEBI tart increasing the lot size of lot size nifty future and option is it true ? please explain
Yes, lot size is increasing effective from November. Check this for a detailed explanation – http://tradingqna.com/18362/how-will-lot-size-increase-affect-trader-and-brokers
hi karthik,
i have a doubt when sell qty is more than buy qty definitely price will go down , today i see that sell qty is increasing but price don’t go down please find the screenshot and please explain
Sarath – the buy/sell quantity that you see is dynamic and changes as the day progresses. So what you see now will be very different 15 mins later.
Hi Karthik,
Which is the most liquid commodity future? and where does it stands when compared with USD/INR and NIFTY Future
Thank you
I guess Gold and Crude are the most liquid contracts on MCX…but they are certainly not as liquid as Nifty.
Sir , In the options when we are not exercising the option and allow it to expire worthless what exactly does that mean. Is there a rule of squaring options too??
It means the option has lost all its value and the premium has gone to 0.
No rules as such…but in case you have a long options position make sure you square it off to avoid STT trap. More on this here – http://zerodha.com/z-connect/queries/stock-and-fo-queries/stt-options-nse-bse-mcx-sx
Thank you Sir.I got it.
Hello karthik, I have 3 questions, hope u will answer
First, I can buy shares of any company (ex Infosys) and it’s future also. Similarly I can buy nifty future but can I buy nifty itself
Second, what about sensex can I trade on it
Third, suppose I bought 2 lots of nifty future and after some days I want to square off. Is it possible that if I only square off 1 lot position and other lot I continue to hold till expiry
Thanks
You can buy any company and its futures. You can buy Nifty futures but to buy Nifty you will have to buy Nifty ETF.
You can trade Sensex futures.
Yes, you can do this. No issues with that.
Hey karthik,
Just to want to know that is there any limit on buying nifty futures contract for intraday…can we buy 10k lots of nifty for intraday?
Does the market order get fulfilled?
From NSE website –
The gross open position for each client, across all the derivative contracts on a underlying, should not exceed:
-1% of the free float market capitalization (in terms of number of shares)
or
– 5% of the open interest in all derivative contracts in the same underlying stock (in terms of number of shares)
whichever is higher
http://www.nseindia.com/products/content/derivatives/equities/position_limits.htm
The answer to the query for index in Nifty is
There are no day minimum/maximum price ranges applicable for Nifty 50 futures contracts. However, in order to prevent erroneous order entry by trading members, operating ranges are kept at +/- 10 %. In respect of orders which have come under price freeze, members would be required to confirm to the Exchange that there is no inadvertent error in the order entry and that the order is genuine. On such confirmation the Exchange may approve such order.
https://www.nseindia.com/products/content/derivatives/equities/nifty_50_FO.htm
Hey karthik
I took a put on infy few days back..but it bounced back..again..yesterday also.(which was on 20 th..it couldn’t sustain on its high and came down..but closed positive.i checked it’s future price..it was lower than a spot price and closed in red..does It signifies..is short building up??
Hard to say – the reason is more fundamental here. Infy has been consistent with its statements – giving out earning warning. Markets are just factoring in this and adjusting accordingly.
Futures below spot signifies discount…could mean traders prefer buying Infy spot and selling futures.
DOES LIQUIDITY OF AN INDEX OR STOCK DECREASE ON INCREASE IN VOLATALITY
Tricky this one..in fact illiquidity increases volatility. Higher the liquidity the lower the volatility is what I believe.
Hi Karthik,
First of all let me thank you for your efforts in making such a complex subject in such a simple and easy to understand modules. I am new to Futures trade but now have got some good understanding after going through the modules. I want to know how and when to initiate my first trade, do I need to try dummy trades or can I directly jump and start trading.
Glad to know Varsity is helping you 🙂
You cannot learn swimming by reading a book, likewise the real experience of trading lies in actual trading. Be through with what you, be confident and place a trade. Experience it and learn from it. In my opinion, this is the best way to start!
Hi Karthik,
Thanks for this helpful material!
One question I have is how can we play the normal spread (not calendar spread) with Nifty?
I am asking this because Nifty future does not have a corresponding Nifty spot instrument as far as I know. There are Nifty ETFs, but they do not track the Nifty spot price closely enough. There is quite some difference between the Nifty ETF NAVs and current Nifty levels. Is there some other alternative to represent the Nifty spot prices in an easy and accurate way?
Thanks,
Ishwar.
Check this – http://zerodha.com/varsity/chapter/synthetic-long-arbitrage/
I wanted to ask that while buying a lot in nifty or anything how do we come to know abt the expiry of the contract in the trading software of nest ? as in does it mention that this is the expiry for the contract ?
1.”Besides if stock/futures is highly liquid then it usually translates to lesser volatility.”
why??
2.”Most importantly, if the stock is liquid then placing a ‘market order’ is hassle free.”
why?
Higher liquidity means tighter bid ask spreads, hence impact cost is lower, hence it contributes to lesser volatility.
Again when you place market order, if the stock is not liquid then the price at which you transact will be very different from the last traded price. Hence place mkt order only in stocks which have good liquidity.
I am a trend followeri trader in nifty futures !!and i incurr slippages as my orders are stop market !!
Could you provide me a rough estimate of my slippage cost if i trade with 100-500 lots !!
In antiicipation
Slippage on Nifty futures is not my as the liquidity is extremely high. I’d say its under 0.002%.
Hi Karthik,
One basic question.
Do we need to manually square of the Nifty future, before the end of expiry day or will it automatically gets squared of on the expiry day? Is there anything like more STT charges for futures, like in the options, if it is ITM on expiry. Kindly guide.
Futures is not a problem, you could let it expire and the exchanges will settle this for you.
Thank you Karthik. Your writings are superb….we are learning lot from you.
Happy to know that Vignesh.Thanks.
Sir,kindly give me snapshots in Zerodha kite to place order for sbi futures in intra day with buying selling profit loss snapshots for my beginning in futures, still now future couldnt understand ,so pls guide me
Check this – https://kite.trade/docs/kite/#orders
Sir, if I write CE 8300 @ 16 premium today and same day write 8100 PE @ 12 what is the margin requirement today? My another question since both CE and PE are written on same day (hedging) does the margin requirement decreases when compared to two only PE or CE writing . I hope I could express my doubt properly. Please
You can use the margin calculator here to see if there is any spread benefit for the position, check this – https://zerodha.com/margin-calculator/SPAN/
Sir If I write a PE 8500 at 6. and 8700 CE at 5 what margin require to day and if both shorts are carried forward to tomorrow will the margin be reduced since it is having a span gap and hedged with one another option
I’d suggest you use the SPAN calculator for this – https://zerodha.com/margin-calculator/SPAN/
Hi Karthik. Never enjoyed reading like this before. Thanks for your hard work. A couple of doubts:
1) “Trading the Nifty futures requires one to take a broad based economic call” What does it mean exactly?
2) Nifty is highly sensitive to any kind of news/events, be it global or local. Sometimes when we are trading Nifty futures based on TA, there is a chance that a news might not come to our notice which has a huge impact on Nifty thus triggering our stoploss and ending in loss. Is there a way we could keep ourselves updated all the time with any small event/news that could impact Nifty. Any particular website or news channel/hour you suggest us to follow?
Glad to know you are enjoying the content here!
1) This simpler terms you need to take a call on the direction of the index. If you expect the index to go up, it implies you expect the overall economy to improve. Of course this is theoretical….in reality people go long and short multiple times a day.
2) The basic assumption when you trade based on TA is that the news is already factored into to the price! Having said that, check out pulse.zerodha.com
Karthik
Suppose I place a market order to buy nifty at 9:01 am, then does it guarantee that it will be filled exactly at market open(i.e at 9:15 am) and exactly at the open price?
There is no guarantee as such Arun. However, I would avoid market orders as you may end up getting really bad rates.
Hi,
How to do technical analysis of Nifty Stocks as i could only see the Nifty Futures in Kite, It is impossible to see the price actions or the volumes for a period of more than 2 months. Is there any way to see Nifty’s last few yearns data in Kite?
Charting on Kite is super simple, check the user manual – https://kite.trade/docs/kite/#charting. Spot data should be available for over last few years.
I could do the chart for other stocks for even years. But for Nifty I could able to do charting only for two months.
You must be looking at futures data. Nifty Index is available for several years.
I trade with zerodha since 2015 jan .. what i experience that it’s a good team …. Some time some issue with kite and pi but overall very good …8/10
And versity 10/10
1.. my question is If I place 500 lot then what will be the slippage .. any idea sir .
2. Do I need basket order slice for order execute as the quantity freeze is 100 lots
It really depends on the liquidity. If its highly liquid like Nifty futures then you need not worry about slippage…but if its not, then the slippage really depends upon the impact cost. You can read about impact cost in the same chapter or next I guess.
why there is a difference between buy and sell quantity? Is it not that what is being sold is bought by someone and hence they should be equal?
Think about this – I may goto the vegetable market with an intention to buy 10Kgs of onions (buy qty is 10Kgs)….but in the market there could only be 8Kgs (sell qty) available. So naturally there is a mismatch in buy and sell qty, likewise in the stock market.
Hi Karthik,
I’m new to the trading world and I have recently opened an account with Zerodha but not invested yet. I have two questions but before I ask them I wanted to thank you for putting in all the effort in this source material, its simple brilliant.
My first question is how to I calculate my P/L if Nifty Futures go move 50 Bps?
Is it 50 bps*number of lots (2 lot) = 7500 Rs P/L
Secondly, can I trade in Indian Markets if I’m working outside India being an Indian Citizen ?
Thanks for the kind words Anand.
For every one point movement in Nifty, you end up making or losing Rs.75. So if Nifty moves up by 10 points you make 75*10 = 750, however if you have 2 lots, then 750*2 =1500.
75 is the lot size of Nifty and the minimum movement of Nifty is 1.
Yes, you can as long as you have a valid trading account.
Dear Karthik
Nowadays the nifty is falling fast and we don’t know where it is going to stop..but long term story is good. IN that scenario can one take one lot of nifty at current price and add one more lot if it goes down to 7500 without worrying when it will bounce. And on one fine day whenever market is up at 9000 we square it off……till such time keep it rolling. Does it make sense……pls guide
A wise man once said, “Markets can stay irrational for more time than you can stay solvent” 🙂
Hence, I would not advice this strategy unless and until you have deep pockets to incur all the M2Ms.
What would be the ideal stop loss if I am trading 1 lot of Bank Nifty on 5 minute time frame? How many points stop loss is the ideal so I dont lose too much if I am risking only 2%?
You cannot force fit a stop loss on any trade. This is a rigid practice. Stoploss should come by naturally for a given trade.
I understand I cannot force fit a stop loss on any trade and it should come naturally for a given trade. I was asking in terms of tick value and tick size. . For Example: If I was trading 1 lot of Bank Nifty at 8000 and my stop loss was at 7950, and I got stopped out at 7950 what would be the loss based on tick value and tick size for Bank Nifty?
Loss would be the lot size * Number of points.
Great work!
I can see that the nifty lot is 75 instead of 25. Do they keep changing it and if yes, why do they change it? How can I be informed of such lot size changes?
Yes, lot sizes are reviewed and changed (if required) periodically. NSE aims to keep the contract value constant, but as price changes so would the contract value. This is when NSE decides to either increase or decrease the contract size.
The changes would be communicated through your broker.
if i place a SL-M order for NIFTY FUT(recent month contract), at say, 8010(trigger price) what can be my approx impact cost?
Or because it is a very liquid script it will get executed exactly at 8010?
if it does have a impact cost then will this order ensure that it is executed exactly at 8010–:
normal SL- trigger price 8009 , limit order 8010.
One cannot expect an exact price when its a market order. However, when the impact cost is low (higher liquidity) the execution will be near the desired value..but not the exact value.
also what will happen if the trigger price is hit (8009), but then the price reverses there after without reaching the limit order. can we then cancel the order??
Nope, order would have been executed.
also what will happen if the trigger price is hit (8009), but then the price reverses there after without reaching the limit order. can we then cancel the order??
will it be a good thought to manually place the oder each time(buy or sell) (i.e. without SL, CO or BO ) on nifty futures as it is however very liquid and because the impact cost is low.
Yes, this does make sense especially when the volatility is high.
1) So this months nifty futures expires on 29th dec. At what time, at the end of the day (i.e. 29th)?
2) What should we do as a day trader, trade the dec month contract or the jan month contract?(now that just 2 day remains for the dec month contract to expire).
1) 3:30 PM
3) If your holding period is over 3 days, then it makes sense to buy the Jan Futures.
Opened a/c recently and willing to start Nifty Future trading from coming April. Having one query…….. after executing trade how could I convert MIS position to NORMAL position? Can I do that?
Yes, you can. On far right (in Kite) click on comparison symbol next to change and you will notice ‘Convert’ option.
and with Pi? is it not possible?
Another question….. a sticker always there on screen i.e. nifty and sensex. How could I add bank nifty with them? Waiting for your reply.
Check this – http://zerodha.com/z-connect/tradezerodha/pi-tradezerodha/market-watch-trading-screen
Yup, it is.
Sir if we buy nifty future current month 1 lot then sir our order is executed at market price or its execute above 10 points from pi software
Depends on the order type – limit order restricts to purchase to the price you want to buy at..and market order lets you buy at the prevailing market price. However, even if you place a market order on Nifty, it is unlikely you will get 10 points higher.
Hello Sir,
You have advised in above Q & A to do the analysis in spot and execute in futures. If I want to trade nifty futures, how do I do it in spot nifty without volumes. Only the nifty futures have the volumes. So can I do the analysis in nifty futures itself. Kindly clarify. Thanks in advance.
Agreed. The overall market volume data provided by the exchanges is equivalent to the volumes data. I’d suggest you start tracking that along with the chart patterns on Nifty spot.
Sir I wish to know if we can place 1000 Lots of nifty options in one go in a single order.
Is this permitted by the exchange ?
No, in one shot you can place an order for 200 lots. So if you wish to buy 1000 lots, then you will have to place 5 orders…i.e 200 lots per order.Also, you maybe interested to know that the maximum limit for a retail trader is 5% of the open interest.
Hi Karthik, I am an existing Zerodha customer and wanted to know if it si possible to trade Nifty derivative via Kite platform. if yes, can you please explain how?
Of course you can. We conduct two online demos everyday, I’d request you to attend one to figure out how this can be done.
Check the schedule here – https://zerodha.com/educate/
Thanks for Karthik for the support. earlier, I have another request for PI software can be run in IOS environment. So far, I hv no clue of it. Could you please let me know if we have IOS version PI Software.
No, not available on IOS yet.
Great effort by Zerodha team in educating its clients.
have we started PI in ios platform?
Great materials Karthik – much appreciated..
I have 2 questions, can you please help me in understanding?
1. What would be the usual nifty future lots’ number a professional day trader trade in NSE with minimum target and SL? May be for 5-6 trades a day?
2. Also, what would be the optimal/practical number of lots used by such pro traders via BO where all lots brought and sold in one order each executed for buy and sell trades?
1) Really depends – I know traders who place few lots (5-10) to few 100’s. Rest of the things are usually driven by the trade itself.
2) Again, no straightforward answer to this. Its highly personalized to you trading account and trading temperament.
Thanks Karthik!
Cheers!
Sir …if my directional view on nifty or on any stock is bullish .then i will go for buying call option …why to buy fucture ….i think option are cheeper then why people trade futures …??
Yes, you can do that. But remember futures is a very straightforward instrument…options are not.
Sir you told options are not strighi forward pls clarify
When you trade Futures, only the direction of the market impacts the P&L, whereas when you trade options, along with the direction, the speed at which the market is moving, time, volatility also impacts the P&L. Hence options are not as straightforward as futures.
Is there any way to find out if it is going to be trending day of a choppy day?(say for nifty or bank nifty)
Any thing that we can analyse and say that this day might be a trending day or a choppy day?
Candlestick patterns usually gives you a sense of this.
who to get the exact volume of the nifty futures? because at one time 3 contracts will be there so do we need to add the volume of all the 3 contract to get the volume of that day? or is there any other way?
Just look at it on an EOD basis.
Today for the first time I was going to trade in Nifty Future. But a lot of issues are now arising which I have not faced even 2 months before. Right now I am not able to re-login. Price was not updated properly when I logged in. That’s why I logged out and tried to re-log in. After some time I was able to re-log in . But now I am facing the same problem again……. i.e no timely updated price. Right now both interactive and broadcast signals are green. But Nifty future chart as well as share prices are not updating. I am facing this issue since 3 weeks. Definitely you do have problems with Pi. I have already informed you regarding this. But I was outside of my residence when you called me. You may call me right now as I am sitting in front of my computer. Please do the needful as soon as possible. I am unable to take any position in Nifty Future. Sent email with attached file. Now I am waiting for your response.
Hi
I have a question
If today difference between underlying and future of near month is 35 points
On expiry will necessarily difference be zero
Please answer
Thanks
Yes, on expiry both the underlying and spot converges, drawing the difference to zero.
Hi,
Sometimes, especially in the last week, why is the value of nifty futures less than the nifty 50 indx. isnt it supposed to be more than that and then converge towards expiry?
Yes, it will converge on the day of the expiry. However, during the series, it is purely the outcome of demand and supply.
thanks karthik
Welcome!
Hi
If i want to short Nifty at current price (not in futures), is it possible in kite. If yes, please tell me how to reach at that interface.
Yes you can. We are having a live DEMO (online) on kite and other things at 2:30 PM, please do attend the same. Demo link will appear here – https://www.youtube.com/user/zerodhaonline
1. There will be impact cost in all trades. Is there any fixed impact cost% above which we should not trade OR One have to decide it on his/her own risk appetite?
2. On which assets one should trade more liquid or more volatile?(in both futures and spot market)
3. In case of volatility we can expect better profit then why to buy liquid stocks?
?
I’m going to start charging you for queries – 20 buck per query 🙂
1) Nifty;s spread is best considered for measuring impact cost. If I’m not wrong its 0.002%. Keep this as a benchmark.
2) More liquid
3) -NA-
??sorry for too much questions?
Lol 🙂 Thats good, the more ask, the better for all of us!
4. It will be better not to place market order if there is high volatility?
5. Which type of order would work best in case of high volatility?
4) Yes – with an expectation that impact cost wont impact your trade
5) Check this 18.2 – http://zerodha.com/varsity/chapter/volatility-applications/
6. In which case should we calculate impact cost and round trip?
6) In case of ill liquid stocks.
sir,
Most of the time, a
the start of a new series , Nifty future’s premium are high (20-25)approx , but in this june series, nifty futures were at discount rate. Does this mean that nifty should be in tight range this month as people have shorted nifty in a narrow upper and lower range which may would result in a small range of series.
Or it has a different meaning ?
Can you please explain ?
No, at the end of the series, the futures and spot tend to converge. Either the Nifty drops to catch up with spot or the spot increases to Fut…but eventually they converge. The difference mainly arises due to cost or carry/demand/supply.
thank you so much sir for all your answers and giving us great knowledge and a different mindset to read and analyse markets.
Good luck, and happy learning!
I m a new in share mkt.may i get bank nifty,future,option,commodity all process step by step to trade through mail.if so it would be kund of me. Thanks.
Everything you would need is documented quite well here. Request you to go through the same.
So, I want to know that whether I would be able to buy 25 lots of nifty future @8631(first example) or just 1 lot (=25).
Thank you
Lot sizes have been revised since then. 1 lot of Nifty futures is 75 units now.
Thank you…. But just for information I’m asking, in the example I’ve mentioned, how many lots I could sell (then) @8631
Ok, in that case, it would be 1 lot.
Hi karthik,
Can you tell me the current NRML margin to buy 1 lot of nifty futures(75).
It’s around 76K. You can always use the margin calculator to get the best estimate – https://zerodha.com/margin-calculator/SPAN/
Thanks.
Sir, I am new trader. I have a curious question about how big is the market. Is it possible to trade 10000 lots of banknifty?? It will be market manipulation?? Is it an offence??
You can trade how much ever you want. However, at 10K lots on BN, you maybe hitting a position limit. Check this – https://www.nseindia.com/products/content/derivatives/equities/position_limits.htm
Hello sir
Is it adviseable to trade in nifty futures using BO with trailing tight stop loss?
Thank you
varsity student
Of course, it does. This is assuming you know what you are doing 🙂
Hello sir
You did reply, as i believe, in very philosphical way. I request you to elaborate, if possible, a little more.
Thank you
Varsity student
Kumar..I can only give a philosophical answer 🙂
Technically, you can place a BO and trade. You can have a tight stoploss.
I have been reading Varsity since May, 2016 and placed my first trade in nifty option in June this year and booked some profit.
While reading “Intelligent Investor” i found that the author compared trading or speculation with some sorts of gambling that i found aberration.
Well i have been using TA as taught in varsity and remained successful almost 65%.
I want to know your views regarding speculation vs gambling.
HAPPY INDEPENDENCE DAY
Thank you sir
Varsity student
Kumar, have addressed this point here – https://zerodha.com/varsity/chapter/mindset-investor/
Happy Independence Day, to you too!
Should i admit day trading particularly in derivative segment as speculation?
Well, especially true is if you do not have a trading system with risk controls.
price written in article below order book of mrf future:
Buy Price – Rs.38,364.95
Sell Price – Rs.38,266.25
price in order book of mrf future:
Sell Price – Rs.38,364.95
Buy Price – Rs.38,266.25
do both price written correctly or it is a mistake?
i got it ,it is price in round trip.
Cheers!
Hello sir
SEBI has proposed compulsory physical settlement in stock derivatives contracts.
I read Nithin Kamath’s comment in ET where he said that it would be boon for hedgers and might be better if it would be combined with the exchange stock lending and borrowing platform.
Now my questions are:
1. What is physical settlement for stock as well as index?
2. How does it effect hedgers and derivative traders who don’t own any portfolio?
3. ET in its editorial critised this though CEO of Zerodha praised the move. What is your take?
Thank you
Varsity student
Check this – https://tradingqna.com/t/attn-nithin-kamath-sir-please-reply-to-this-thread-stock-option-to-cumpolsory-delivery-of-shares-by-sebi/19980/19
Hi Team,
I am a Zerodha customer was trying to understand what STBT and BTST orders and How can I trade in this for Nifty Future? I could not find any document on it. Please advise.
Thanks
Check this – https://zerodha.com/z-connect/queries/stock-and-fo-queries/btstatst-buyacquire-today-sell-tomorrow
Sir, I can’t Thank you enough for writing such wonderful educational articles on stock market….I am new to stock market…I have also opened an account with Zerodha…I have read many educational articles on stock market in internet…but truly speaking…nothing can beat the modules of Zerodha Varsity….once again a big THANK YOU.
I have a question. I have tried some intraday trading with the steps described by you for swing trading….my thinking was that if I have a swing view on a stock going up or down, it should go up or down on a daily basis also. By this logic, I have tried intraday trading but I was unsuccessful. In most of the cases, my stop loss got hit by some wild movement in price, even though at the end of the day, I have found that my swing view on the stock was correct. That’s why, I have decided that I will stick to Swing Trading. I also have a 10-5 job, so swing trading is also very suitable to my time schedule.
I have read somewhere that rather than picking a new stock every time, if one focuses more on a handful of stocks, observe their movement regularly and know their behavior,it helps much more in the long run. So I have a decided to include Nifty, Banknifty and Nifty Top 10 stocks only in my Opportunity Universe and scan them regularly for opportunities.
I would be highly grateful if you give your valuable opinion on this. Am I doing it right?
Thanks for the kind words, Sundipta. Hope you continue to like all the material here 🙂
The problem is that the movement in stock can happen anytime during the timeframe opted in swing trade. It could happen in 1 day or may happen on the 5th. Translating this to day to day movement is hard.
Yes, focus on few stocks and knowing their price behavior well is good.
Thank u very much sir for your prompt reply..I have one more question…How does Dow theory help in swing trading….
Suppose, a I find a bullish engulfing pattern, prior trend is downtrend. Now, I look at the stock from dow theory perspective and look at the weekly chart and find that the primary trend is downtrend. Now, if on the next day the stock forms another green candle, should I go long then? Will that not be going against the trend and violation to the ” trend is your friend principle”?
What should I do in this case? Plz don’t mind if I sound stupid…I am just very much confused about the various concepts as sometime they seem to contradict each other.
Dow helps you identify broader trends….double bottom, double tops, breakout etc. The best trades (at least according to me) is when the candlestick pattern coincides with a dow theory. For example – a bullish engulfing also matches with a double bottom.
So sir, for swing trading, is it ok then to go against the primary trend if other conditions are met?
Yes, certainly possible.
Ok sir……thank u for clearing my doubts
Cheers!
Hi,
Can we carry forward Nifty FUTURES to next days as like Equity FUTURES?
Regards
Prasad
Yes, you can do that.
Sir,Can I trade 10 lots of nifty by bracket order?Will brokerage is charged as single order or as multiple orders like 3+4+3????If i gain ten points in this,then my profit is near to 7500(75×10 lots=750=750×10=7500) or not ??
Yes, you can. For entry order, you will be charged 20, but for the exit, you will be charged based on the number of trades. For example, if the exit of 10 lots happens through 3 trades, then you will be charged for 3 trades.
Hi sir
What is the tick size of nifty ???
Thanks in advance
0.1 paisa.
Hi sir
Is there any chance of reduction of nifty lot size
Since the nifty futr lot is above 10k ,the margin requirement(NRML) is very high .As we r small retail participant its bit heavy to us .
What ur openion sir will nse consider these and what parameters they look to change lot size
Thanking you sir
Highly unlikely! SEBI wants contract value of all derivative contracts in the ₹5-10 Lacs range(Nifty at 10k has a contract value of ₹7.5 Lacs) to keep the small trader out of the speculative trading business.
Hi karthik ,
I heard that Sebi is planning to start weekly nifty options contract, is it true?
Not sure, no official communication on this.
karthik avare olle kelsa maadtiddira , varsity modules tumba chennagive , thank u karthik..
Thank you 🙂
ಎಲ್ಲರೂ ಕಮೆಂಟ್ಸಗೂ ಇನ್ ಟೈಮ್ ರಿಪ್ಲೈಯ್ ಮಾಡ್ತೀರಾ,ಶಭಾಷ್ ಕಾರ್ತಿಕ್….
ಆಡು ನನ್ನ ಪುಣ್ಯ ಸರ್.
ಕಾರ್ತಿಕ ಒಂದು ಡೌಟ್ ಸಾಲ್ವ ಮಾಡಿ: ಉದಾಹರಣೆಗೆ- AGM Meet for Page Industries for Dividend purpose is sheduled on Nov 10 which is now trading at 19300/- per share , if i buy one scrip of Page Industries before AGM Meet n if the declare 50/- dividend , can i be eligible for dividend OR there will be any Holding Period criteria to be eligible for Dividend??
You will have to be the shareholder before the record date of the dividend. For example, if on Nov 10th they decide to give a divided of 50/- on 25th, then record date will be 2 days before the payout i.e 23rd. So even if you the stock around 20th its fine.
ಥ್ಯಾಂಕ್ಯೂ ಕಾರ್ತಿಕ್ ಸರ್..
Cheers!
Sir, Is it ok to take future trade of a stock after analysing the spot market chart of that stock?
I m asking this because i cant draw support and resistance levels on future market chart of a particular stock.
Yes, its perfectly fine.
Excellent work by you and your team. Very impressive to write such good content and i really admire these modules. Great! keep going. All the best.
Thanks for the kind words, Abhinav! Happy learning 🙂
I want to know if I can buy 81000 shares of SBIN FUT (27 LOTS) in intraday and sell it within minutes after making some quick profits.
Is it possible to buy that many lots and then sell them?
Yes, I guess SBIN is liquid enough for this order.
What would you say is the ‘break even’ percentage for the impact cost? Below which, the particular stock is liquid, and above, not so liquid.
If the impact cost is around 0.02% or so, I would consider it as liquid.
Hi Karthik
In USA market there are indicators like tick, tiki, trin & trinq to gauge overall market depth.
Does any such indicators available for Indian Markets ? I know advance decline of NSE but is their any specific which can compare with above USA indicators mentioned.
Thanks in advance for your detail elaboration
Not really, Reena. Tick, tiki, trin & trinq sounds interesting 🙂
Trick, Tiki, Trin & Trinq are very interesting and powerful indicators used by USA professional trader and some of my USA freinds use them and said that this indicators gives them edge over other ameture traders.
Thanks for the inputs, will check this out.
HI Karthik.
My question is regarding application of technical analysis on charts with respect to futures and specifically to Nifty futures.
Futures (underlying either stocks or nifty index) expire every month. The longest timeframe for futures of any underlying asset is 3 months, right?
So, when applying technical analysis on stock futures, on what chart should one apply it too? The chart specific to the future being traded? or to the chart of the underlying stock since the price of the future contract mimics the price of the underlying asset?
Again, with NIFTY futures, I have a similar question. Do we apply TA on the index’s candlestick charts or the chart of the nifty future being traded?
Since the charts of the futures show data of timeframe of 1 to 3 months, would they give a clear picture of support and resistance? or would the chart of the underlying index or stock be studied to determine support and resistance levels?
This is quite debatable. I personally prefer applying TA on spot charts and executing the trade on Futures or Options.
Thanks for the reply Karthik.
Any specific reason on why you apply the TA on the underlying (spot price of stock/index) rather than futures chart? is it just a personal preference or do the spot charts indicate trends in a more timely manner than the charts of futures/options?
Technically, the futures derives its value from the underlying. Also, I can load more data point on the underlying, which gives me scope to look at it from a slightly longer-term perspective.
Hi Karthik ,a bit curious ..why you buy in Future while do analysis in Spot. Why don’t you buy /sell in Spot ,I mean why you prefer buying/selling in future
Futures gives you leverage, this is the biggest advantage!
Thanks Karthik,
I have gone though each of the chapters mentioned on zerodha.com/varsity, simply awesome and easy to understand with clarity, I learned the art of trading with these chapters and got cleared all of my doubts with the user’s query & ur response, I was nil in stock trading before registering on zerodha. Once again thanks a lot.
Happy to note that, Vikas 🙂
Good luck and stay profitable 🙂
How much is the Profit/Loss of Nifty Future trade against movement of 1 pt. ?
Rs.75/-
Hello karthik
Usually there is few points difference between the sgx nifty and nifty in a live market.
But what does it mean when there is a huge difference between the two in live market.
Thanks.
This is because SGX is a futures contract on Nifty. Hence the difference. I’d suggest you ignore the difference, look at only the direction of the move.
Hi Karthik,
I have a question related to sgx nifty. How does the futures price of sgx nifty (trading on Singapore exchange) change when the underlying nifty hasn’t even opened ( I mean the Indian market hasn’t even opened). I think I have some knowledge gap here. I have an understanding that futures price follows the spot price but in this case it seems opposite. Because I have seen whenever sgx nifty trades green, nifty opens green.
Can you kindly throw some light on this ?
Thanks
The price on SGX is only indicative. This is similar to how DOW Futures trades across the world, even when the US markets are closed. The futures price is only indicative.
Thanks Karthik
If I don’t square off then exchange automatically square off position on expiry day.
1.) If I square off position say at 3:20 on expiry day, then money will be debited or credited in the account same day ?
2.) If exchange square off then when the money settlement takes place ?
1) Yes
2) Settlement happens by eod of day. You can withdraw your funds the next day.
Hi Sir,
When we look back at 5-7 trading session’s in nifty50 we have seen a move of around 400-500 points (especially in the last 4 session’s) without any major correction.
can I say that the run which nifty50 has seen is driven by its derivative or
Is it a pre budget rally which tend to happen before budget on its way.
Plz clarify sir.
Thanks in advance.
I’m tempted to attribute this to a pre-budget rally 🙂
Thank you sir,
Agreed.
One more question for you sir plz bear with me,
Do exchange’s provide weekly contracts??
I’m asking this because on every Thursday business news channels talk about weekly expiry especially on nifty & bank nifty???
If there r no such contracts than y do they talk about it.
Kindly answer my question sir.
Thanks in advance.
Yes, bank nifty options have a weekly expiry.
Hi Karthik,
Please share a demo link on how to trade on Nifty Futures.
Thank You for your valuable Posts
How to trade as in how to buy and sell Nifty on the trading terminal or are you referring to Nifty trading strategies? For the demo check this – https://www.youtube.com/watch?v=1Jy23XfKwG8&list=PLkxTRam6E2V-okv6gwQlt6dLTsn0v6CD1 and for strategies check this (this is work in progress) – https://zerodha.com/varsity/module/trading-systems/
Thank You So Much Sir.
Learning a lot from your replies for the various queries in the comment section.
Happy learning!
Sir at the end of this chapter in point 5 i.e ‘Broader Economic call’ you have mentioned “doing the former is much easier than the latter”.
Does it mean that its better to trade in Nifty futures than individual futures contract?
True.
You explain so simply and so brilliantly. Thank you for such a great job. I have a question apart from trading Nifty in Futures and Options can we trade Nifty in the Spot markets as well? If yes can you explain how to do so?
Not really, Frank. If you want to buy the spot, you will have to buy and sell the NIFTY ETFs. However, these ETFs are not so liquid, difficult to trade.
Hi,
Kindly explain how much time to hold sell side in nifty future.
Depends on your risk appetite.
I have started trading recently. I have read some of the queries and replies about the futures trading .Now i will write what i am given to undertstand.Please clarify whether i am correct or not.
I offer to buy from A one lot of 250 shares at a date set for rs.25000. Actually the value traded is rs800 per share which works out to rs.20000/ and the rest 5000 being the margin. Now my question is can i deposit rs 5000 as margin money. And supposing i stand to gain i get rs 5000/ from A its ok and at the same time if i lose i will be losing only 5000 deposited. MY question to you is whether should i pay the entire share amount of the balnce 20 k also or this margin money of 5000 is sufficient.
Only the difference has to be settled and this happens via the margins blocked.
1) Can I buy about 10000 lots of nifty futures with Zerodha? (multiple orders perhaps?)
2) Is there a limit on numbers of orders in Zerodha?
3) Will 10000 lots worth contract immediately sell? (liquidity?)
4) Best ways to predict Nifty direction for the day?
5) Is doing this daily worth it?
Thank you very much and beautiful texts by the way!
1) Yes, you can
2) Nope, you can place as many order as you can
3) May not be, you will lose a couple of points due to liquidity… but you will get a fill
4) Tough one – but the Technical and Quantitative analysis is probably a better approach
5) Depends on your strategy
I have read and seen in alot of places nifty futures require 7000-8000 Rs margin however zerodha calculator mentioned 39000.
Is there something I am missing?
7-8K is not possible. You need to change the product type to MIS and the margin reduces to 25K. Check this – https://zerodha.com/margin-calculator/Futures/
Hey Karthik,
Is impact cost same as slippage?
Thanks for the wonderful article!
Yup, its the same, Kishan.
Awesome, thanks Karthik!
Suppose, if I sold Nifty futures one lot each at 10436, 10476 and 10496 (in NRML) . The next day if I buy one lot at 10400 and sell at 10520 on the same day. Will it be considered intraday (with the 3 existing lots unaltered) or will it be considered as squaring off of my first lot (which was bought at 10436)?
The very first contract(bought at 10436) will be considered for square-off. F&O trades follows the first-in-first-out method of calculation
Hi Karthik , appreciate your prompt response ..however still confused in Spot and Future buying ..even in Spot we get good leverage which is upto 30-40 times for A category of stocks ,than why do you trade in Future..Infact I know many traders who looks into Spot and trade into future ..Kindly elaborate with example ,if possible. Thanks in advance
The leverage in spot is only intraday leverage, you cannot carry that forward like futures. Plus futures have the added advantage of M2M wherein your profits and losses are settled end of the day.
Even I feel Future intraday is not that felexible like spot/Cash trading ..In future we have to trade a lot size ,however in cash we even can trade significantly low quantities compared to Future lot size of many stocks..That way Cash/Spot buying should be lucrative compared to Future ,however still many traders ( including you as you mentioned somewhere in the QnA ) prefer to trade in Future while looking into Spot …Not able to correlate the rational behind this .. Kindly advise ..thanks in advance !!
You can carry forward the leveraged position, but in spot you cannot.
Thanks buddy ,, appreciate your time to answer my silly queries !!
No query is silly my friend 🙂
Keep learning!
Hi Karthik
Thanx for all the previous info.
My new doubts
1. Can we buy a future contract of say of July today and sell it the same day.
2. Which contract is more advantageous This month’s or next month’s or the far month’s.
3. and finally why do they have three months contract at a time.
1) Yes, you certainly can
2) This month (current month) always has more liquidity, hence better
3) To facilitate hedgers with slightly long-term perspective.
Pl tell me how to rollover a future contract. ie. The procedure.
Does it have a time frame. ie. can i rollover a contrct of may to june today.
what about the loss it made ie. about -6000 where will it refect ? in the new contract ?
Rollover is simply the act of closing the position in the current month contract and initiating the same position in the mid/far month contract. The loss is settled with the respective contract.
That means i will have to sell the may nifty and buy the june nifty. isnt it. With the current loss will i have margin for the new buy.
That really depends on how much funds you have in your trading account.
How many times nifty futures can roll overed?
Hi Sir,
1. In one of the comment, you have mentioned that time of expiry future and spot tend to converge to a same price without any difference in price between them.Why this happen so?Kindly explain in detail.
2.Will the above happen for all stock or only for few specific stocks?
3.If future and spot price will converge to same price during expiry, will there be any trading opportunity because of this?
4.If Oder book can change anytime, means then the impact cost can also change right !!! Also impact cost can change anytime because of sudden change in demand and supply because of any news,etc,If So then what is the use in calculating it if it can keep changing?
5.Should the difference between trigger price and order price in SL order should be based on Impact cost?Is this how the impact cost can be used?Is there any other usage available for Impact cost?
1) Becuase at expiry, there is no ‘cost of carry’ and hence the future and spot price converge to a single price point
2) Yes, to all futures contract
3) Yes, a simple example is buying futures sell spot or the reverse
4) Impact cost remains the same more or less, but the buy and sell rates and quantities keep changing
5) Yes, you can look at a technique where you strategies SL and trigger based on the spread between bid and ask, rather than looking at impact cost.
Good luck.
Hi Sir,
1.If we are to trade Nifty / BANKNIFY futures, on looking at the underlying NIFTY and BANKNIFTY index, there is no volume data found for the underlying in Zerodha Kite. Then how to ensure that the volume is above average in these underlying (NIFTY and BANKNIFTY) indices,though other checklist items can be verified?
2.Is there any other way we can get volume date of these underlying (NIFTY and BANKNIFTY) indices ?
1) The index does not have volume. You can look at the overall market turnover for this
2) Overall market turnover should be a substitute for this
Hi karthik, is there a live chart that plotting bids and offer of nifty futures ? Or anything related to it ?
You can open the market depth on Kite, you will see where the maximum liquidity lies in the stock.
Thanks for reply. How can I see the values 1 hour before the time of me logging in?
Sorry, can you please elaborate?
chart of nifty Aug future gives me the value today at 9.51am was 11464, When I logged in at 7pm today. How to know the bids and offers at 9.51 am today ?
You cannot. The Bid-Ask prices varies every second based on the order flow. These values are not stored for later reference.
sir, the modules are very informative and the way it is written is exemplary. sir i there any way to track the institutional investors, and at what price they are buying so that i can follow them and be profitable.
regards
IMRAN
Imran, thanks for the kind words. The only way to track this would be to look at the bulk and block deals on the exchange. Check this -https://www.nseindia.com/products/content/equities/equities/bulk.htm
please tell which global indices is likely to affect nifty most or how can we get a view of global economic developments likely to affect indian markets.
As far as I understand, Dow certainly has an influence. Apart from that, Hang Seng does have an influence.
Hi Karthik,
as per the proposed sebi rule wherein a trader’s exposure will be computed based on his networth/ITR, is it applicable only to the f&o segment or will it be imposed on cash segment too (BO/CO orders)?
I’d suspect that its applicable to F&O, but its best to wait for SEBI’s final say on this.
Hi Karthik,
Yesterday I got mail from zerodha about “Increase in F&O margins due to exposure margin increase.”
It said about Additional price change for Index Futures, 0.5% for 14 sept, 1% from 28 sept upto 2% from 30 nov . What it means exactly?
1. How it will affect the Intraday index futures trading?
2. Will exposure margin increased?
3. For positional traders their is need to settle it Physically on Expiry?
4. I have an account with 35k as i am a intraday index futures trader, Should i need to increase the amount?
1) Margis for both intraday and overnight positions will go up
2) Exposure margin remains the same, SPAN goes up
3) Yes, that is if you intend to keep your position open to expiry
4) You’d still be able to trade MIS Nifty positions with 35K, but personally, I’d advise you don’t 🙂
Thanks for quick response Karthik,
As you mentioned in 4th point you advice me not to trade MIS nifty futures positions…..
1. What are the risks in it?
2. If there is risk how should i overcome it? Should i need to increase my acc amount to 100k to avoid the risks?
3. or is there risk related to with the expiry of the contract?
1) Risk of trading with relatively small capital, Pradeep.
2) Yup
3) Its the above risk.
Sir, is it true that trading nifty futures with renko charts is very profitable?.I have back tested past three years using 30 size blocks with 10 and 30 SMA with some rules. Sir, it is giving more than 100 percent return every year. is it really possible in the live market. Shall i start implementing my strategy.
Not really, these just random things people say 🙂
Btw, I’ve never used Renko charts, so I cannot really comment on this. But as a general advice, if something is too good to believe, then probably it is 🙂
Hi Karthik if we join for any support jobs at zerodha can we learn even more about markets.Do we have any good courses to learn so practically.
Yes, please do talk to our HR dept for openings.
Dear Karthik,
In TA module you urself said that alternate to bid ask spread is one can check for volumes greater than 500000, then why to take so much pain of finding bid ask spread, impact cost, round trip loss etc. when simply we can check liquidity by checking on volumes?
No one really does the impact cost calculation while trading especially if the quantity traded is small. As you said, you can just look at the volumes and take a call.
Dear Karthik,
I am bit confused. Apologetically speaking, if we dont need to look at bid ask spread, impact cost, etc at all, then why this full length chapter on the same?
If we do need to look at them, then broadly on what instances we shall?
Arun, the idea is to be aware of what impact cost is and how its calculated. When you build strategies, factoring in slippages due to impact cost is very crucial.
Dear Karthik,
thnx for ur reply.
Regarding rollover plz clarify that we have to sell current month future on expiry and buy mid month future? or there is another way of doing rollover especially in zerodha?
That’s the only way to rollover Aurn 🙂
Are Foreign instituional investors allowed to trade FnO . (Not for hedging but to speculate)
Yes, they can.
what is nifty50 TR2 leverage index, Is it of any use .
Omi, this is an index with 2 times leverage. No practical use for retail participants.
Hello Sir,
1. What is max/min stop losses(in points) can be applied on nifty swing trade of say 1-2 weeks
2. What time frame chart can be used in it.
3. Can i swing trade in nifty futures with capital 75k with all the technical disciplines…
TIA
1) This really depends on your risk appetite.
2) I’d suggest end of day chart
3) You can.
Thanks a lot sir🙏
Welcome!
Karthik, When I buy one SBiN Futures contract of Dec Month technically i’m buying 3000 shares(1 lot size) of SBIN or investing 3000 shares in SBIN and SBIN is having benefited here.
But When i buy one Nifty Futures contract of Dec Month which is 75 Quantity.. who is benefited here.. i mean will 75 quantity will be invested back to Nifty 50 stocks ?
SBIN does not benefit directly or indirectly when you buy its futures. The future is a contract on the underlying. I’d suggest you read through this module for more clarity.
Understood this after 5 years, made money in stock futures, lost money in stock futures and finally took a call that playing stock futures is not my cup of tea neither trading in cash is my liking. So finally trading Nifty and Bank Nifty & happy that I changed my trading equipments.
Happy trading, Prashant. Stay profitable 🙂
Plz share Nifty future trading strategies with me….I am new in Nifty future trading. I want to trade Nifty so friends plz help me.
Karthik sir u cal also sugges me…
Thank you.
Here you go – https://zerodha.com/varsity/module/trading-systems/
Thank you sir..
Welcome, Asheesh!
Hi Karthik, Are there weekly contracts on Bank Nifty Futures like how there Weekly Bank Nifty Options.
No, there are no weekly futures.
Hello Sir,
I read about benefits of trading Nifty futures over stock futures.still I have few doubts..I hope you clear this:-)
1)are these attributes applicable for bank nifty as well.?
2) which is more volatile nifty or bank nifty..?
3) whose futures should be traded for intraday trafing or scalping..Nifty or bank nifty..??
4) is it alright if I stick to banknifty for trading intraday and not nifty..?? Coz I heared nifty is more stable than bank nifty but during intraday instrument should have volatility..
Plz clear my doubt as I am getting confused which to select for intraday trafing nifty or bank nifty also you can suggest me your point of view..
1) Yes, not just Bank Nifty, but all futures
2) Bank Nifty because it is a sectoral index
3) That’s your choice, you can trade both actually
4) Sure Bank Nifty is volatile and gives more opportunities. But volatility is a double-edged sword and, like as I said, it is your choice this really depends on the way you’d choose to trade.
I really appreciate your reply sir..!!
You know I have developed a ridicule habit that I open chart of both indices and suppose when I see opportunity in Nifty, I confirm it with Banknifty also and vice versa. End result is I miss trading opportunity….making myself more cofused..
And I agree that volatility is double edged sword but I dont keep trades more than 5-10 minutes ( kind of scalping) so my heart says banknifty is good for me but mind says stay with Nifty as it is more reliable…I just somehow want to justify that less is better in stock market. Instead of sailing in two boats, I should concentrate only on banknifty..sorry that I am sharing my confusion..you have more experience, you
Know what I am going through…
Raj, this is a very typical problem, don’t worry 😉
Here is a simple solution – stick to Nifty and not Bank Nifty. Concentrate only on this, get comfortable, and consistent…only after this, move to Bank Nifty.
Haha..:-):-)
Thanks for valuable suggession sir..!! I will stick to nifty before moving to banknifty..Its like always listen to your mind and not heart, be it trading or love…LOL:-P
You said it 🙂
You said we can sell lot or stocks immediately (like with in 2 minutes of buying) . So is this for futures or future option?
And please explain difference between future and future options .
There is nothing like ‘future options’, Deependra. You can sell the futures contract anytime you wish.
Why zerodha does not have NFTYMCAP50 futures on NFO market even though NSE F&O provides it ?
Hi Karthik,
Kindly clarify my query.
Which one these are better for intraday trading?
Nifty Future Vs USDINR Future ? (Pardon my ignorance, but which currency pair is the most liquid?)
Based on two minimum criteria
1. Liquidity, and
2. Brokerage (for similar BO margin and similar %age target and stoploss setting)
Brokerage is the same for both, however, in terms of liquidity, I think its the Nifty Futures.
Thanks Karthik,
One followup query,
Regarding Brokerage, my query was regarding the bottomline net profit for trader, post deduction of brokerage and statutory charges. It seems that, currency future doesnt have STT charges, does it make it more profitable?
Example:
Nifty Future – 1 Lot – BO Margin required Rs.13500 – Target 5 points (0.043%) – Profit before deduction Rs.375 – Profit after deduction Rs.200 – Net deduction Rs.175
USDINR Future – 20 Lot – BO Margin required Rs.14000 – Target 0.03 points (0.043%) – Profit before deduction Rs.600 – Profit after deduction Rs.500 – Net deduction Rs.100.
Above numbers are based on Zerodha Brokerage Calculator.
Disclaimer: Im a complete novice with currency future, kindly verify my understanding. Based on above calculation USDINR has less charges, presumably due to absence of STT.
The profitability should stem from the trading idea, Himanshu and not from lower charges. Yes, no STT, but GST is applicable. You can find all the charges here – https://zerodha.com/charges
Thanks Kathik, for prompt reply.
Welcome, Himansu!
How many nifty lots will make market move?
Every lot has an influence 🙂
sir how to find volatile stock, like witch stock give daily 5 to 8% move ?
You can do a quick calculation on excle for this. Explained here – https://zerodha.com/varsity/chapter/understanding-volatility-part-1/ and the subsequent chapters.
Sir please explain the following question
Suppose i wanted to trade in nifty future ,since it’s future is derieved from index price,i wanted to know whether we can manipulate it’s future price ……….suppose i have sold a large quantity of future lots(let say 100000 lots) at Market Price then what will happen??
It is very hard to manipulate the index. Even if you manage to do that, it will involve a lot of money.
How the traded value showing in Derivate quote of a particular share is calculated?
Traded value = Quatity traded * traded price.
But traded value is found very much higher than ” total traded qty * traded price”
Todays yes bank future traded value = 788 crore
Total qty = 2281400 (buy) + 4518800 (sell)
By considering yes bank avg price = 100
So total price = 68 crores only coming.
In every share i found very less value when calculatung.
1) You need to take the volume figure only, not buy and sell separately
2) Take the futures price
Hi.. this is going to be a long comment. Bear with me pls. I have been trying to understand this TRADING thing since last one year. I was confused with trading or investment as many successful people are from investment fraternity starting from Mr. Buffet, Charlie Munger to our own Rakesh junjunwala, Ramdeo agarwal, ramesh damani to name a few who have created greatest wealth over last 30 years. They could do such wonders because of magic of compounding over a period of time. They might have compounded their capital at a rate of around 25-30% per annum. If one can earn 26% p.a. on his capital of 10 lakhs every year compounded for 30 years, he will end up with staggering 100 crores. Just 26%p.a. (doubling money in every three years). There are many more illustrations to explain power of compounding which is the eighth wonder of the world as Einstein said. But my purpose is not to discuss compounding. But as traders we dont want to compound the money over time. We want to get rich quick. Want to make 10 20 30 percent in a day or week. Greed! and we complain.
On this line, a thought crossed over. We need to earn 25%p.a in trading. So what to trade? Well, its difficult to trade stocks. No meaning in chasing and following different stocks. Rather study just nifty. Far more predictable, liquid, less volatile compared to stocks. Over a period of time, one can gain some expertise.
Coming back to 25%p.a… The margin we get on nifty future is up to 30 times. So to earn 25% on capital, we need to capture .83% on nifty. Including charges may be 1% in a year. That is around 110 points per year. Just 110 pts PER YEAR. May be 10 points per trade and just one successful trade per month for 10 rs. Aila.. just this can make my 10 lakhs to 100 crore when i retire.
So to achieve this, I just need to practice and master one strategy/candle pattern/indicator/ any thing. Just one sure shot per month for 10 points or just one positional trade for 100 points and stay tuned till 30 years. Only nifty, no stocks.
Haaha… Easier said than done. Mathematically correct. But the discipline and mindset it takes, not every ones cup of tea. When you bet all your money on one trade when it gets big, one cant handle emotions. And of course, the loss too can be too big on highly leveraged trade. Thats why they say, trading is 10% strategy, 90% mindset or emotions. Can anyone achieve this?
please share your insight on this and Please refine my thoughts if it is not logical. Regards
Well, you’ve answered your own question 🙂
Mathematically, this looks very easy but the complications can be quite crazy. What if you have 5 losses in a row? YOu’ll lose 50 points straight and your capital will be will down lets say 30%. Now to make up for the 30%, you will have to make 42%, much harder.
So you really have to think through all the risks involved before you venture into such a plan 🙂
how to set stop loss in Nifty Future (BO/MIS).
exp.
Buy Nifty Futures at 11500
My Stop loss is 11470
in bo / stop loss which is i indicate – A – 11470 or B 30 points
[email protected]
I couldn’t found ‘Trading strategies’ module as you mention in the Futures module
This module, Santhosh – https://zerodha.com/varsity/module/trading-systems/
dear sir ,
i go through with your this tutorial.
sir i want to trade nifty 50 future as a intraday without any leverage provided by zerodha how is it possible.
there is two option available in KITE ZERODHA while i tried to buy or sell NIFTY 50 future
1) MIS (means intraday only and get leverage)
2) NRML (position carried over night no leaverage provided by brocker)
Anil, you want no leverage, then you opt for the NRML position. Even NRML comes with some leverage, if you want 0 leverage, then you should buy Nifty ETFs.
Dear sir ,
good morning !!!!
so you want to say i can BUY & SELL NIFTY 50 future NRML position before 15:15 PM as same day.
am i right.
Yup,thats right Anil.
If I have 8.5 lakhs with me and wish to invest in NIFTY, wont it be more profitable to buy 1 lot of NIFTY futures month after month instead of investing in a NIFTY index fund? The margins required can be provided with JUNIORBEES + LIQUIDBEES. So the margin money also is not really idle. We just need to keep about 5% of 8.5 lakhs = 40000 as cash in the account always for MTM losses. What am i missing here?
It would, its just that most people are not comfortable accounting and buffering for M2M losses. If you can tackle this, then yeah, you can do this.
Good morning Karthikji
There’s buzz about SEBI giving to BSE Sensex to launch Futures-Options on its index… curious to know if it’ll be launch in near future ?? Or is NSE Nifty will enjoy monopoly
There is hardly any trading in these contracts, Harash. So liquidity is just not available.
What is the best way to invest long term in NIFTY ?
Nifty ETFs, check this – https://zerodha.com/nifty-etf
@karthik- is there any indicator or formula wherein in KITE or PI Software, i can make the VOLUME/ OPEN INTEREST Ratio in the charts?
Hmm, I need to check. No ready indicator that I can recall.
Hi sir, may I know how index futures will be taken as, for calculating STT & ETC ?
Eg: Nifty
Buy– 50lot×75×12,500 = ₹ 46,875,000
Sell– 50lotx 75×12520 = ₹ 46,950,000
Now what is turnover to calculate STT & Exchange transaction charges and other SEBI etc.,
How other charges excluding Brokerage is calculated on Fut stk & Index Fut ?
May I get clarity on this ?
Tq.😊
Kiran, this gets added to your other income and taxed at 30%. I’d suggest post this query here https://zerodha.com/varsity/module/markets-and-taxation/
Sir, thank you for ur fast reply. I want to know how STT & ETC are charged i.e., 1)What would be the turnover in index futures to calculate STT &ETC ?
2)May I know, why index charting number is different from actual exhibited number on expiry day ? Eg: on 26/12/2019 BN ended on 32020 on candle stick charts but real exhibited number is 31997. As per charts 32000CE is ITM, 32000PE is OTM. I’m confused at the End of the Day numbers. Can I get clarity on that as well.
Hope a little patience from u 😊😊..
Tq.
1) You can check this for the charges and breakdown – https://zerodha.com/brokerage-calculator#tab-equities
2) The intraday chart shows you the LTP, whereas you maybe looking at the NSE site to see the close (post market). The close number is the average of the last 30 minutes. I’d suggest you look at the EOD chart, this will match.
Hi Karthik,
Is there any way we can buy index at spot price(delta=1).main reason for this to avoid basis risk in futures. Can you please guide how can we avoid basis risk in futures.
Thanks for your modules.
You can always buy a Nifty Index ETF https://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=NIFTYBEES , does not have the best of liquidity but works from a delta perspective.
Hi Karthik,
Thanks for reply. Any alternative to avoid basis in index nifty?
Avoid basis as in?
Hi Karthik,
Avoid basis in futures wrt spot. I would like to know if we can avoid basis (future-spot) in futures trading since it is not always fixed( contango speed is not fixed)
Thanks,
Nikhil
Nope, its a part of futures trading, you cannot avoid this.
how to get impact cost for nifty options or bank nifty options and other stock options as well? i see in nse website there are impact costs report exist only for stocks. is there any source?
I’m not sure if this is published. However, you can generally look at the bid-ask and get a sense of how good/bad the impact cost is.
Hi Karthik, great articles and info, thank you for sharing. I live in AU and am exploring Nifty futures as a trading instrument and have some questions if you’re able to clarify?
– I understand there are 2 listed Nifty futures contracts: NSE and on SGX (Singapore). Can you advise what the difference is and why the 2 contracts exist?
– I did read about a dispute between NSE and SGX regarding the listing of Nifty futures on SGX but some resolution has been reached. Do you have any further insight into this matter?
– Are foreign individuals allowed to trade the Nifty futures on NSE? None of my brokers support NSE trading other than Interactive Brokers (but only for Indian residents/citizens per regulation?). Is this why the SGX contract exists?
– If
Glad you liked the article, Ted.
1) Nifty 50 is managed by these guys – https://www.niftyindices.com/indices/equity/broad-based-indices/NIFTY-50 whereas the SGX is owned and managed by the Singapore stock exchange. SGX follows Nifty 50.
2) Not really. AS far as I’m aware, the arbitration is now settled and SGX is listed in GIFT city, which is a special economic zone for NRIs and FPIs to trade and invest in India
3) You can, but you need to set this up via SEBI’s FPI scheme, check this https://www.sebi.gov.in/statistics/fpi-investment.html. This comes at an added set up and compliance cost. I suppose you are better off trading the SGX.
Great. Many thanks for the reply.
Good luck, Ted!
i don’t know if this is a right question.does derivatives affect the underlying in any possible way?
It does but it does not hold for a long time.
If I short one lot of Nifty future and plan to close position by buying it back before expiry. Now if at this stage, it is having some (unrealised) gains (say Rs 6000), What will happen to this gain ? Will it get added to my portfolio’s (unrealised) gains or will it get added to my Zerodha funds or is there any other adjustment method?
The P&L gets adjusted on a day to day basis, this is called the mark to market settlement. Hence you won’t be taking the P&L forward as it gets settled daily.
mr Karthik,
it is great learning through Varsity. can u please tell where is the margin for MIS given in zerodha calculator. Not able to figure out.
thanks
Here you go Vikas – https://zerodha.com/margin-calculator/Futures/
mr Karthik here i find only for nrml and not for MIS in the margin calculate.
MIS is usually 35% of NRML. I’d suggest you call the support desk for this.
Hi karthik,
You are doing a great favour to people like me to learn about markets.Thanks for that.
1.can you please tell if we have underlying stock then how many future contract can be created on based of that one underlying stock?if its unlimited then how can we deliver the stock on expiry date.If its same as number of underlying stocks then who own the stock on expiry date?
2. What if you selling in future and it expired then how i am supposed to deliver the stock on settlement date.
3.If SGX NIFTY is just directional future then how they keep going up and down ,just simply on the basis of demand and supply means just a pure speculation on the underlying index or does it have any relation with nifty spot.
Thanks in advance.
1) The stocks that you have in the demat has nothing to do with the number of contracts you can trade. You can trade as many as you want as long as the margins are available.
2) As you move closer to expiry, you need to have stocks in your demat i.e. if you are short. Suggest you read this as well – https://support.zerodha.com/category/trading-and-markets/margin-leverage-and-product-and-order-types/articles/policy-on-physical-settlement
3) Yes, demand-supply plays a key role. What drives the demand-supply is the sentiment about the underlying economy.
Hi karthik,
Have been following markets for quite a while now. I wanted to know what would be the logical implication if, the index fut is trading at a discount or premium to the spot price.
Thanks in Advance
Futures trading at a premium or discount to spot is quite common. However, if this is beyond the normal range then you can look at arbitrage opportunities. Expanded in later modules.
Hi
In the starting of this chapter, you mentioned the price of Nifty in the spot market is Rs. 11470.70. I think one cannot buy shares of Nifty from the spot market as Nifty itself comprises of 50 companies. What do you mean by price of Nifty in the spot market?
Thanks
By spot, I mean the underlying index itself.
Sir
In the above examples of MRF and Nifty Futures, below the ORDER BOOK data from NSE Website, there is a link “COST OF CARRY”. What does this imply?
Thanks
Cost of carry, is a theoretical reference to the cost of financing a futures position.
Sir
Thanks for your quick responses. I want to know who the value of “NIFTY IN SPOT” market is arrived at?
Thanks and regards.
Thats the index value, changes as and when the stock price of the constitute companies change.
Thats the index value, changes as and when the stock price of the constituent companies change.
Sir
In my previous query, kindly read “who” as “how” i.e. “how the value of NIFTY in SPOT market is arrived at?”
Thanks
Hi Karthik,
Let’s say I short sold some shares and I bought the same amount of shares back at the end of the day. Now let’s say the shares that I bought do not get delivered to my account on T+2 day because the seller defaulted, I will not have enough shares in my account on T+2 which I was supposed to have. In this case, will I be penalized?
The shares that you buy covers you for the initial short position, so there is no question of shares hitting delivery or your DEMAT account. The trade is net off for the day. However, if you are unable to cover your position, then you run the risk of penalty.
Sir,
I want to know what will happen if I don’t square my buy position in future contract till expiry.Do I need to mandatorily buy the shares as per number of lot in contract?.
Yes, please do check this – https://support.zerodha.com/category/trading-and-markets/margin-leverage-and-product-and-order-types/articles/policy-on-physical-settlement
Hi Sir,
I am doing backtesting for nifty future for 3 years , where in data provided by vendor was 3 month contract in single file .
Example – Below data provided by vendor
1. NIFTY410 – Having 3 month future contract from 20100129 to 20100429
2. NIFTY510 – Having 3 month future contract from 20100226 to 20100527
In order to consider for back testing effectively for 4th and 5th month future contract ,shall i consider below date alone for back testing
For April contract expiry date was considered – 26th mar’10 to 29th Apr’10
For May contract expiry date was considered – 30th Apr’10 to 27th May’10 for back testing or have to consider or whole 3 month data for back testing
regards
Elamparithi R
Hmm, I’m not sure. Ask your vendor to give you a consolidated future rolling data instead.
Hi sir – Thanks
Hi Karthik.
‘Higher the liquidity, lesser the volatility’.
Shouldn’t it be other way round? That is higher the liquidity, higher would be volatility. My reasoning is that, if a stock/future contract is highly liquid, then it would be trading at every available price and the graph will be very smooth, making it highly volatile. On the other hand, for a less volatile stock/future, it would not be that easy to see change in price. Hence the graph would be slighly jagged, and the stock/future would be less volatile.
Higher liquidity, higher the trading frequency, more trades are smaller price intervals, hence lesser volatility. That’s the rationale.
Hi Karthik,
I have couple of queries
1) can we buy Niftybees today, hold overnight and sell tomorrow? (Before it is credited in our dmat acc).
2) Does hedging Niftybees with proprotionate nifty futures works?
1) Yes, you can
2) Hmm, not really. ETFs are not very effective in India yet.
If I buy a far month nifty future (bought of June month expiry in April), can I square it off any day before June closing. I mean can I square it off any day in April, may or June. Pl reply
Yes, you can do that Suresh.
hi, does the Bank Nifty Futures depends on bank stock or that month bank futures ???
Depends on the banking industry as such.
can i trade intraday banknifty future with 10k capital ?
i will use BO/MIS with max 200 points SL which means 4k loss.
plz reply
Is it compulsory that we buy NIFTY futures immediately the next day (Friday) of Expiry date(last thursday of month).
Can we wait for couple of days after expiry date for buying the NIFTY Futures . Like say if April20 futures ends on last Thursday for buying futures can i wait for some more days in May month and then buy before expiry and square off before expiry date of May month futures.
No, there no compulsion, you can transact anytime you wish!
Hi thanks for well written concept.
I would like to participate in nifty 50 trading .
But i see many options active for trade in nifty
Like nifty may 20 9500 CE/pe and so on …
How to pick good one with good volume so that I can make profits from trade using technical analysis
I’d suggest you start paper trading with Nifty 50 Futures and then look at other instruments.
Is there any tool which give nifty future volume ever min, both buy and sell?
YOu can look at the Nifty 1-minute chart and plot volumes against it.
Can I buy nifty bank futures with cash and carry(CNC) mode. Please anyone guide, since i am not sure about this.
Yes, please select NRML as product type instead of MIS>
Hi,
I was observing a trend in a few of the auto stocks that the futures at longer expiries are cheaper. For Tata Motors, the spot is Rs. 102.5, Tata Motors Jun Fut is 102.15 and Tata Motors Jul Fut is 102.30. I was reading online about backwardation, but did not see any reference to the phenomenon in equity. Is this something that can be ignored or is there potential to exploit it.
Thanks for all the information and the help; I’ve learnt more from Varsity than my college.
Premium and discount in the equities world is called contango and backwardation in the commodities market. They are the same 🙂
You can sell the spot and buy futures, but that’s getting into SLB and stuff. Not so easy for retail traders.
I am new buddy to stock market. May I know at which day futures contract expire every month in Zerodha ?
The monthly derivatives contract expires on the last Thursday of every month, Balaji. The date is set by the exchange, broker has nothing to do with it.
Thank you
Welcome!
excellent . simple write up.
query – Have devised a NIFTY trading system . This requires entry and exits as per the parameters defined . Entry as exit signals however do not overlap that of the Nifty Futures time frame . In other word can Nifty Spot be traded (without trading ETF instruments ) like in continuous contracts ? or are continuous contracts used in backtesting only ?
Amit, no spot cannot be traded. You’ll have to do this on Nifty futures. ETFs are not good for trading.