What is Bank Nifty?
In the Indian stock exchange market, you have two types: Bombay and National. The two of these stock exchanges have their own indices: Sensex for BSE and Nifty for NSE. In Nifty the "N" stands for National Stock Exchange while "ifty" stands for the top fifty companies present in the stock market. Nifty is an index that measures the movement and prices of stocks that keep changing every day. When talking about bank nifty we confine the definition of nifty just to banks.
The banking stocks are considered here and an index is generated. This takes into consideration just 12 top banks in the national stock exchange.
How does it work?
The bank nifty is facilitated by a futures contract that can be accessed from an online trading account. The terms of this contract can differ and the trading cycles span over three months: near month, next month, and far month, that can be renewed after these three months.So how exactly does this work? Bank nifty trading has to be done quickly and sharply as fluctuations can occur immediately. Let's look at this illustration to understand bank nifty better. First you need to make sure that you have margin money of 1 lakh that is if you decide to trade 4 lots bank nifty. Then, subsequently, the profits or losses accumulate. If you manage a profit of 400 points for each month then you earn a 40% profit. Subsequently, for 600, 800, and 1000 points you receive 60%, 80%, and 100% profit respectively.
Is bank nifty a safe option?As much as bank nifty poses as a better option, economists beg to differ. Some believe that the overall nifty index is safer than bank nifty as it covers all the possible companies in the market. In the case of bank nifty charts, it only covers bank stocks. When speaking in terms of volatility, due to the limited number of stocks, high volatility will be witnessed while applying for a bank nifty. This can cause some unnecessary worry as to the buying and selling of stocks. To eliminate mishaps, economists suggest that during dull market rates you can buy a nifty option and sell it as a bank nifty future.
On the other hand, if it's a field day, then you can buy bank nifty future and sell it as a plain nifty future.
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