A stock market index represents a particular financial market segment and acts as a benchmark. The benchmark index helps investors and fund managers to analyze the performance of their portfolios. For instance, your portfolio has given a 12% return in the last financial year whereas the NIFTY 50 index has given a 15% return in the last financial year. So, your portfolio has not beaten the market index and you suffer a loss of 3%. On the other hand, if your portfolio has given a 15% return in the last financial year whereas the NIFTY 50 has given a 12% return in the last financial year. In this case, your portfolio is performing better than the market index. In this article, we are going to learn about Bank NIFTY, how Bank NIFTY works, the strategy for trading in the Bank NIFTY index, and How to trade in the Bank NIFTY index?
What is a bank NIFTY index?
The representative index of banks is known as Bank NIFTY in the stock market. Bank NIFTY index consists of twelve companies belonging to the banking area which are liquid and large-cap stocks. The bank NIFTY index represents India’s overall banking sector performance. Bank NIFTY was established by NSE (National Stock Exchange) on September 15, 2003. The main purpose of creating a Bank NIFTY index is to create a benchmark and analyze the performance of the banking sector in India.
Investors need to keep in mind that the Bank NIFTY index is highly volatile and one can lose money if the right strategy and risk management are not followed.
How to trade in the Bank NIFTY index?
You can trade in Bank NIFTY with intraday options trading. However, you must have knowledge and experience of intraday and options trading before trading in the bank NIFTY index.
- Spot trading: The most simple way to invest in NIFTY is to buy the NIFTY script. When the price of the stocks increases, you will reap the benefits of capital appreciation.
- Index fund trading: Index funds are a replica of market indices. For example, if you want to invest in the NIFTY 50 index, you can invest in the NIFTY 50 index funds. It works like a mutual fund but the expense ratio for index mutual funds is lower than other mutual funds.
- Derivative trading: A derivative is a financial contract between two parties that obtain its price from a group of assets, benchmark, or an underlying asset. The contract gets settled on a future date at a set price
To conclude, the Trading in Bank NIFTY index can help you earn lucrative returns. However, trading is associated with high risk. So, before trading in any instrument understand yourself, obtain knowledge of how bank NIFTY works, find a strategy that suits you, and gradually with constant practice you will be proficient in trading.
