The Nifty Bank Index, also known as Bank Nifty, is totally made up of the most liquid as well as well-capitalized Indian banking firms.
What is the Bank Nifty?
- Bank Nifty serves as an investor benchmark by capturing the capital market performance of Indian bank stocks.
- The entire banking sector is represented by 12 companies in the index.
- The index came into existence for the very first time in 2003.
- The two main variants of the Nifty Bank are as follows:
How does the Nifty Bank work?
- The Bank Nifty has got a number of pros and cons.
- On one hand, Bank Nifty is appealing to its traders to aim for a rapid profit because of high volatility as a spike in the price is more likely with this script.
- This feature will be considered very appealing to intraday traders as any profit margin of greater than 2% every day will be considered a very solid day of trading for any trader.
- However, because of the unpredictability of the script, it becomes risky at times.
- The simple notion of what goes up must come down is very much expected here as the price will rise and if you are not able to book your profit on time or crack a deal, there are high chances that you might end up losing money.
- Hence, there are also high chances that the amount you have earned might be lost if you aren’t able to keep a track record.
Also Read: What is Nifty?
How is the Bank Nifty calculated?
- The Bank Nifty index is calculated using the free float market capitalization method.
- For calculating any index, you will need a base date as well as a base value.
- For Bank Nifty, the base date is January 1, 2000, and the base value is Rs. 1000.
- This index level will reflect the total free float market value of all the stocks in the index in consideration to a specific base market capitalization value.
- Every bank in the index is not assigned the same weight.
- The weight is given on the basis of the size of the companies.
- There are bigger companies like HDFC Bank where they will have a high weightage, whereas there are smaller companies like PNB who will have a low weightage.
What is the Bank Nifty expiry?
- Bank Nifty expiry is an end to the validity of the derivative instrument with the index as an underlying asset.
- The expiry date for all the derivative instruments is the last Thursday of every month, but if the Thursday is a holiday, then the working day prior to the last Thursday will be considered as the expiry date.
- When the time comes for the settlement of the Bank Nifty’s F & O contracts, the underlying asset will be delivered or received by the related party by any mode of cash settlement.
Conclusion:
Bank Nifty is a very good option for making a lot of money, but it is also very risky as it is highly volatile.
Frequently Asked Questions (FAQs):
Q#1) What is Bank Nifty?
Answer: It is a stock market index that is designed to track the banking sector.
Q#2) Who can trade in Bank Nifty?
Answer: Almost everyone can trade in the Bank Nifty either through their mobile applications or through their brokers.
Q#3) How many stocks are there in the Bank Nifty index?
Answer: There are a total of 12 banking stocks that will make up the Bank Nifty index.
Q#4) When did the Bank Nifty index come into force?
Answer: The index came into force in September 2003.
Q#5) Who is controlling the Bank Nifty?
Answer: The index is calculated by the NSE Indices Limited.
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