What is the advantage and disadvantage of trading in nifty compared to other stocks
The first thing that attracts a newcomer to the stock market is the value of either the Nifty or the Sensex, flagship indices of the National Stock Exchange(NSE) and the Bombay Stock Exchange(BSE). Their rising and falling values are a mystery to the new enthusiast. We have demystified the Nifty 50 index, which might prove helpful before moving ahead.
Among the two indices, Nifty is the most widely followed and traded on the NSE. There are certain advantages in trading the nifty which will be discussed in this article.
Advantages of trading in the nifty
High liquidity
Nifty can be traded only via the futures option, the new reader is advised to read all about…show more content… Rarely is the nifty’s volume crossed by an individual stock. This proves its popularity among traders and large institutional players, both local and foreign.
High liquidity ensures that the traders can enter and exit their positions easily. Stocks which do not have any derivatives traded against them have a circuit filter, the maximum such stocks can rise or fall in a day is fixed by the exchanges at 5, 10 or 20%, over the previous day’s close.
Investors of such stocks find it difficult to sell the stocks when the market crashes. The stock can continue in a freeze for days together and lose a considerable amount of value before liquidity resumes. Hence, large players prefer trading in the nifty.
Nifty can’t be…show more content… The far month contracts are illiquid, hence, the traders can trade only with a short-term approach.
Every successful investor, be it Warren Buffet, Rakesh Jhunjhunwala, or others have vouched for long-term investing. Nifty doesn’t give that advantage.
Individual stock pickers can earn more from stocks than nifty
Many times the nifty enters a trading range, but the individual stocks continue to rise. Even during bear markets, stocks rise. During bull markets, if the stock picker is able to identify good stocks, they can earn very handsome returns, much more than what the nifty offers, because nifty takes into account both the gainers and losers included in the index.
Stocks gives dividends, whereas the nifty doesn’t
Dividends are a great way to earn a steady flow of income from your stocks without selling them. You benefit both from price appreciation as well as steady dividends. Over the long-term, investors tend to earn a huge income.
However, if you only trade the nifty, you miss out on the opportunity to earn dividends.
With nifty you don’t get midcap and smallcap