The popular acronym TGIF (Thank God It's Friday) takes a whole new meaning for traders now.
So, if you're a regular F&O trader, you are probably familiar with the ebb & flow of opportunities on expiry days. Generally, traders take advantage of trading on the near week expiry on account of higher volatility, time decay, open interest and liquidity. Notably, Thursday is the expiry, so most/all positions expire on that day.
The arrival of Friday marks the initiation of the upcoming week's expiry, resulting in high premiums and low volatility. Hence, trading participation is generally low on Fridays. Also, most traders prefer not to carry-forward their positions over the weekend.
However, Fridays are all-set to be more eventful!
Thanks to the introduction of BSE derivatives, trading on Fridays has been revitalized with boundless prospects. Now, you can trade in F&O contracts of Sensex and Bankex, the two flagship indices of the Bombay Stock Exchange (BSE), right on the FYERS platform. These contracts expire on Fridays, offering lower charges, lesser margin, lower lot size, and more.
The launch of BSE derivatives can be a great move for the market and competition, paving for exponential growth while alleviating the risk of trading F&O concentrated in one expiry day per week. .
In this blog post, we'll delve into the exciting realm of trading in BSE Sensex and Bankex derivative contracts, elevating your trading experience and potentially enhancing your profits.
What is Sensex and Bankex?
Sensex and Bankex are popular indices that track the performance of the top 30 companies and 10 banks in the Indian stock market, respectively. They are widely used as benchmarks for investors and traders to measure the overall health and direction of the market. BSE offers futures and options (F&O) contracts on these indices (Sensex and Bankex), that allow traders to speculate on the future price movements of the indices or hedge their positions.
Why Trade in Sensex and Bankex derivatives?
Here are some of the reasons why you should check out the new BSE Sensex and Bankex derivative contracts:
Friday expiry
Unlike the NSE Nifty 50 and Bank Nifty contracts that expire on Thursday, the BSE Sensex and Bankex contracts expire on Friday. This gives traders an extra day to explore opportunities and create strategies according to the market conditions. It also creates more excitement and anticipation among traders as they wait for the final settlement price of the contracts.
Reduced lot size
The BSE has reduced the lot size of Sensex and Bankex contracts from 15 to 10 and 20 to 15, respectively. This makes them more affordable and accessible for traders, who can trade with lower capital requirements and risk exposure. Reduced lot size also allows for more flexibility and diversification in your portfolio, as you can trade more contracts with different strategies and time horizons.
Lower charges/Cost Savings
The BSE has waived Sensex and Bankex contract transaction charges until March 2024. That means you can save on trading costs and increase your profitability by trading on BSE. Moreover, the BSE has also reduced the margin requirements for Sensex and Bankex contracts, which can further enhance your returns on investment.
Increased Trading Volumes
The BSE Sensex and Bankex contracts have witnessed a significant rise in trading volume and open interest since their launch. That indicates a high demand and interest in these contracts among traders and investors. High liquidity ensures you can enter and exit your trades easily and quickly without any slippage or impact cost. High liquidity also improves price discovery and reduces volatility in the market.
What are the benefits of trading in Sensex and Bankex derivatives?
Here is a list of benefits expected from the launch of the BSE derivatives:
Risk Management
Trading in BSE Derivatives is an effective risk management strategy. BSE’s foray into derivatives enables traders to hedge their existing equity positions and mitigate the downside risks. Using futures and options contracts, investors can protect their portfolios from unexpected adverse market movements, potentially minimizing losses and enhancing risk-adjusted returns.
Portfolio Diversification
The relaunch of BSE derivatives widens the pool of investment opportunities available to investors. Investors can diversify their portfolios beyond traditional equity investments by accessing index-based derivatives, stock futures, and options. This diversification helps spread risk and potentially enhances overall portfolio performance.
Innovation
BSE’s active presence in the derivatives market fosters healthy competition with other exchanges, stimulating innovation and improved services. Competition drives exchanges to introduce new products, enhance trading platforms, and provide better customer support, ultimately benefiting investors.
What are the risks associated with the BSE Index Derivatives contracts?
BSE derivatives trading also involves risks that you should be aware of before commencing trading. Some of the main risks associated with BSE derivatives trading are:
Liquidity Risk
Derivative contracts run the risk of buying/selling at the desired price or time due to low trading volume or market depth. This can impact your profitability and exit strategies of trades. The risk can be minimized by choosing contracts that have high volume and open interest, and by avoiding contracts that are close to expiry or have large bid-ask spreads.
Trust Dynamics
Although, BSE is the oldest stock exchange in India, the dynamic changes in the financial landscape have paved the way for NSE to shine as a prominent player in the equity derivatives market. It accounts for the majority of the derivatives trading volume and turnover in India. Its commendable reputation for reliability and trust sets a high benchmark that BSE is dedicatedly striving to reach in its own journey.
How to Trade in Sensex and Bankex Derivatives?
Trading Sensex and Bankex derivatives is easy and convenient on the FYERS Platform. You can analyze and trade seamlessly using FYERS Web, FYERS Next, and FYERS App .
However, before trading in Sensex and Bankex derivatives, open a Demat account with FYERS. Also, if you know anyone among your friends and family looking for a hassle-free trading experience, don't forget to refer them here.
Conclusion:
BSE presence in the derivatives segment can accelerate the growth of India’s equity derivatives market. It can also lead to the launch of newer products and promote innovation in the industry. The correlation between the Sensex & Nifty and Bankex & Nifty encourages trading enthusiasts to create strategies that leverage across the exchanges.
Moreover, trading in BSE derivatives contracts can be a rewarding experience for traders looking to trade options in the Monday-Friday settlement cycle or same-day expiry. Also, the lower lot size will enable traders and investors with lower capital to hedge the risk.
Start trading in BSE derivatives today and enjoy the benefits of trading with FYERS.