How is SGX Nifty useful while trading the Nifty index?

The SGX Nifty refers to the Nifty index futures contracts traded on the Singaporean Stock Exchange.

· 2 min read
How is SGX Nifty useful while trading the Nifty index?
header image credits : The Straits Times

You must have come across this namesake of the Indian National Stock Exchange's index called SGX Nifty if you have opened any business news channel; before the opening of the Indian equity market, all you will see is an hour-long discussion on the SGX Nifty and its implications on the opening of the Nifty for that day. However, it's very confusing to many what SGX Nifty is and why traders use it to determine their view on the market for that particular day.

What is SGX Nifty?

SGX stands for the stock exchange based in Singapore, called Singapore Exchange Limited, and Nifty is the index of the top 50 companies of the National Stock Exchange in India. Putting this together, the SGX Nifty refers to the Nifty index futures contracts traded on the Singaporean Stock Exchange.

But why is there a Nifty index in Singapore?

Typically non-Indians or non-residential Indians (NRIs) cannot access the Indian markets for trading indices, due to multiple regulations, the same way Indians find it difficult to be allowed to trade on foreign stock exchanges. To counter this, non-Indians and NRIs will trade Nifty index futures in the Singaporean stock exchange for speculation or hedging purposes.

Also, Indians cannot trade in the SGX Nifty.

How is SGX Nifty different from Nifty?

In India, there are 75 shares (soon to be 50) in every Nifty contract lot whereas the SGX Nifty is denominated in terms of US dollars. If our Nifty is trading at 14000, then the contract size of SGX Nifty will be 14000*(2 USD) i.e., 28000 USD.

Say, for example, if the Nifty moves up by 100 points for the day, then make a profit of 100 rupees per share. Therefore, total profit in the case of Nifty will be 100*75 = Rs 7,500. But in the case of SGX Nifty, we will be making a profit of 100*2 = 200 USD per contract. This is arguably the biggest difference between SGX Nifty and Nifty.

Also, as a result of the above, open interest is calculated based on the number of shares outstanding in Nifty while in SGX Nifty it's based on the number of contracts outstanding.

Is the SGX Nifty open at the same time as the Nifty?

Nope. While the Nifty is open from 9:15 am IST to 3:30 pm IST, the SGX Nifty is open to trading in two sessions from 6:30 am IST to 3:40 pm IST and 4:10 pm IST to 2:45 pm IST. As the SGX Nifty trades for longer hours, it is capable of capturing global trends even when the Nifty index is closed for trade.

How does the SGX Nifty affect the Indian Nifty index?

Finally coming to the important question, the advantage of SGX Nifty being available to foreign investors for almost 16 hours on working days indicates global cues that may affect the Indian markets. For example, if the Government of India had announced something that could be detrimental to the markets at 9 PM on a Monday, the SGX Nifty will immediately indicate the cues, while an Indian investor looking at Nifty will have to wait till Tuesday morning before deciding to trade.

Most traders have a look at the SGX Nifty around half an hour before the market opens to get an indication on whether the market could open gap up or gap down.

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