Similar to a stock future, the index future is also a derivative, whose overall value is reliant on the underlying value similar to the BSE Sensex and S&P CNX Nifty.
While dealing with nifty trading, an investor like you needs to buy and sell the selected basket of stocks encompassing the overall index value, with their individual weights.
Stock index futures are operated depending on the terms of contract numerals. Every contract would be for buy or sell with a defined value of the index. The contract value will be calculated with reference to the overall index value.
They are considered as index futures where the fundamental is S&P CNX Nifty index. For Nifty futures in India, the lot size is 50. They have a definite 3 month trading cycle. Investors trade in Nifty futures by containing an overall margin amount in the accounts. This calculated margin is in the form of percentage of the total contract value.
You can enter into the Nifty futures contract at a particular index value. On the running out of the contract, the overall investor's profits would be the disparity between the index level while expiry and the definite level in futures contract at the purchase time.
You can take assistance from a nifty trading academy and trading institutes to practically work in this field.
There are situations when you sell your stocks; however there are upsides in the overall market, which results in lost probable profits. Index futures assist you to balance this risk. By purchasing index futures while you are short on some of the stocks, you can play down on the amount of prospective profits being lost.
There are situations when you have an overall portfolio but are not comfortable about the market circumstances. In this situation you can choose to hedge these risks by selling the required index futures. The concept works on each and every portfolio that has index exposure and where there are threats by fluctuations in the current or expected index value.
Other options are Long Stock, Short Index Futures, Short Stock, Long Index Futures, Speculative gains and dealing with Hedging Portfolio Risk which work accordingly.
Coverage to a stock is comparable to a particular index exposure. This is possible as most of the stocks move according to the market. If you can read the future market engagements, you can easily make profits while dealing with index futures.