How is the Sensex calculated?

What is SENSEX?

The SENSEX was first formed on 1-1-1986 and used the market capitalization of the 30 most traded stocks of BSE. The base was 1979 and taken as 100. The 30 scrips of 1986 and no more the same - some have been removed while some have been added. At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it reflects current market conditions.

How is the Sensex calculated?

Sensex is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period.

The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of Sensex is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor.

The Divisor is the only link to the original base period value of the Sensex. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc.

SENSEX and NIFTY are more often interpreted collectively with different market records, as both indices are the roots of the Indian stock market. Representing the BSE and NSE respectively, Sensex Nifty mirror the value of a company in the active share market. A group of 30 companies marks Sensex India whereas Nifty exhibits the performance of 50 companies.

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Nifty Futures

When it comes to nifty equity, trading has been so easy since there are no limits as in nifty futures trading or nifty options. Also it’s important for the traders to note that the stocks bought for intraday could be converted to holdings thus for delivery. Traders can also square off their positions at regular intervals as per their time and price requirement. After logging into the terminal, the initial step that has to be done is to add nifty to market watch. For this, one needs to select an option called index which contains all trading indexes like nifty, bank nifty, cnx it etc.

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There are two types of nifty orders that can be placed in the terminal. One is to buy at current market price which is also called as market price and the second being trigger price. If trader needs to buy at current price, one can enter current price or leave blank for the nifty order to get execute immediately. If needs to execute the order at certain price, he/she has to check the box called trigger price and enter the price where the order has to be executed. If the price in the market reaches the trigger price, the placed order gets executed else at the end of the trading day, all pending orders get’s cancelled. Also the next important thing is placing nifty target and nifty Stoploss. Just as trigger, target too has a limit price and trigger price. To avoid confusion, enter both the values same as the price where one needs to place their target or Stoploss.