3 Reasons Why Trading Nifty 50 Is Better Than Trading Stocks

Nifty Fifty or NSE Nifty as it is widely known in the Indian Stock Market is, as we all know, the benchmark index for the National Stock Exchange of India. The exchange has over a thousand companies listed and has the largest daily turnover in the country.

While traders have the choice of trading stocks, futures, options, derivatives and ETFs on the exchange, here are a few reasons why trading the index itself proves beneficial most of the time.

Nifty 50 as the index is commonly known is defined by the exchange as follows :

"The CNX Nifty is a well diversified 50 stock index accounting for 22 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds."


Index futures, Index options, ETFs make trading the Nifty 50 suitable for all categories of traders. While large sums of capital can be easily invested in the futures segment with a lot size of 50, relatively smaller sums can also be traded on the MiniNifty which has a lot size of 20. This gives access to the futures segment to big and small traders alike. For those who are comfortable with the equity segment, NSE has introduced an ETF (Exchange Traded Fund) known as Nifty Bees which can be traded just like any other stock listed on the exchange. The ETF closely follows the movements of the index and has a convenient tick size of 1 paisa.
For hedgers and traders alike, the index also has a chain of call options and put options which also has very high liquidity in the market. At the money options and near at the money options have so much volume that an order gets executed almost immediately. This vast variety makes the index highly popular since it accommodates traders with any capital size and with any investment objective.

Volume, Liquidity and Balance

The sheer volume of trades on the index makes it a popular choice among traders since it frees them from the worry of liquidity. A daily turnover of approximately Rs 10,000 crores speaks volumes for itself. With this on one hand, the index also offers traders the safety of not being wiped out due to poor performance of any single industrial sector. The Nifty represents 22 economic sectors of the country and hence is adequately balanced. At any given day, some fundamental news could send a particular stock or a sector falling heavily which would make a trader with positions in that stock/sector make heavy losses. This does not happen for the Nifty trader. He might incur minor losses, but he is hedged by the remaining sectors and stocks. It is very rare when the market falls heavily as a whole on a single day.

Technical Responsiveness

Believe it or not, the NSE Nifty responds to technical indicators like a charm. Basic indicators/tools like moving averages, pivot points, oscillators can be used easily to predict the movement s of the index for the benefit of traders. A bit more complicated prediction tools like Camarilla Pivots, Elliott Waves, Wolfe Waves also give a very clear picture of the index; with these tools, a trader can clearly understand the situation the index is in and use it to his benefit.

Here are some images which show how the Nifty 50 responds to technical indicators. For more of these examples, leave your comments below and we would love to share our views with you.

Have some more reasons to choose the Nifty ? We would love to hear from you. Please leave your comments below with any suggestions for your fellow readers or with any questions you have.

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