Monday 28 March 2011
What is Investment?
The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment.
DAY-TRADING SKILLS FROM THE WORLD OF FOREIGN EXCHANGE
When it comes to investor types, TWO types, two styles seem to dominate: either an investor likes to study companies at his leisure before employing a “buy-and-hold” long-term strategy, or he prefers the rough and tumble activity of active trade management, timing his market entries and exits by discerning profit opportunities from technical chart patterns. This latter trader would not conceive of holding a position for any great length of time. His objective is to secure short-term gains in the daily price action of a stock or commodiaty currency. However, the goal is not to make every trade a winner, but to achieve consistency such that the “net” of all trades shows increasing profits
Much has been written about daytrading Some experienced traders that have been successful are quick to point to its rewards, while its critics note the carnage of lost fortunes from novice traders that never got the hang of it. Academics will argue that “Random Walk Theory” debunks the notion that profits can be made from technical indicators that rely on past history. Recent studies, however, have actually debunked their arguments, as well have the experiences of active traders in the field of foreign exchange, or Forex, as it is commonly called.
Most beginners that embark on a day-trading regimen in stocks are ill prepared for the task. They have read about companies, studied financial statements, and bought and sold various shares on their favorite stock trading internet platform. They mistakenly make a giant leap of faith that the only thing different about a day-trading environment is the “holding period” for a position. When the market gyrates for whatever reason, they must know how to react quickly, almost instinctively, to unwind a position or take advantage of the wide swings that volatility can bring. The turmoil seen in recent markets due to debt issues in Europe is a prime example. The seasoned trader saw opportunity, while the novice was scared out of his wits.
How then does an aspiring day-trader in stocks prepare for the action to come? He would be well advised to learn from his day-trading brethren in foreign exchange. Forex offers something directly that stock markets can only emulate, and that is the “free” Forex demo trading account offered by most competent Forex brokers. In Forex, the casualty rate is also high - nearly 60% of novices perish in the first six months. Beginners that are still at it after this six-month trading initiation period are regarded as seasoned veterans.
Forex brokers do not make any money if their clients lose their capital quickly. For this reason and others, they have developed extensive training courses to drive home the necessary skill sets that are required in the topsy-turvy world of currency trading. Fundamentals and technicals are studied in depth. Trading strategies are developed and students are instructed on how to approach the market with a disciplined routine, devoid of any influence by your emotions. Psychology plays an important role. Warren Buffett may never have been a day-trader, but some of his favorite words of advice are to never let your emotions “corrode your intellectual framework”.
After education, practicing your art on the free demo system with virtual currency, but with real time trading data is most important. Believe it or not, most successful traders claim that a minimum of six months should be devoted to this practice activity. That amount of time is required to become “battle tested” such that your confidence rises and consistent trading results are routine. You learn what the best forex indicators are, how to use them in combination, and in which markets they may tend to give false trading signals. One of the benefits of technical analysis is its flexibility. You will find that all of the charting skills developed in the Forex world will also apply when using stock charts.
As for the high casualty rate in any day-trading activity, studies have shown that impatience and the lack of experience are the two contributing factors that make all the difference. Practicing on virtual demo accounts is the only way to address these two issues.
As with any other performance-based activity or profession, the best education is to observe experts at the craft and learn how they have achieved their honored status. It is not about luck. It is all about hard work. “Practice, Practice, Practice” should become your daily mantra before you ever step into the real world and put your own real money at risk. Day-trading, whether in stocks, commodities, or currencies, is a high risk business. However, with proper training and considerable practice, you, too can become a “seasoned veteran”, make good money at it, and have fun in the process, too!
Much has been written about daytrading Some experienced traders that have been successful are quick to point to its rewards, while its critics note the carnage of lost fortunes from novice traders that never got the hang of it. Academics will argue that “Random Walk Theory” debunks the notion that profits can be made from technical indicators that rely on past history. Recent studies, however, have actually debunked their arguments, as well have the experiences of active traders in the field of foreign exchange, or Forex, as it is commonly called.
Most beginners that embark on a day-trading regimen in stocks are ill prepared for the task. They have read about companies, studied financial statements, and bought and sold various shares on their favorite stock trading internet platform. They mistakenly make a giant leap of faith that the only thing different about a day-trading environment is the “holding period” for a position. When the market gyrates for whatever reason, they must know how to react quickly, almost instinctively, to unwind a position or take advantage of the wide swings that volatility can bring. The turmoil seen in recent markets due to debt issues in Europe is a prime example. The seasoned trader saw opportunity, while the novice was scared out of his wits.
How then does an aspiring day-trader in stocks prepare for the action to come? He would be well advised to learn from his day-trading brethren in foreign exchange. Forex offers something directly that stock markets can only emulate, and that is the “free” Forex demo trading account offered by most competent Forex brokers. In Forex, the casualty rate is also high - nearly 60% of novices perish in the first six months. Beginners that are still at it after this six-month trading initiation period are regarded as seasoned veterans.
Forex brokers do not make any money if their clients lose their capital quickly. For this reason and others, they have developed extensive training courses to drive home the necessary skill sets that are required in the topsy-turvy world of currency trading. Fundamentals and technicals are studied in depth. Trading strategies are developed and students are instructed on how to approach the market with a disciplined routine, devoid of any influence by your emotions. Psychology plays an important role. Warren Buffett may never have been a day-trader, but some of his favorite words of advice are to never let your emotions “corrode your intellectual framework”.
After education, practicing your art on the free demo system with virtual currency, but with real time trading data is most important. Believe it or not, most successful traders claim that a minimum of six months should be devoted to this practice activity. That amount of time is required to become “battle tested” such that your confidence rises and consistent trading results are routine. You learn what the best forex indicators are, how to use them in combination, and in which markets they may tend to give false trading signals. One of the benefits of technical analysis is its flexibility. You will find that all of the charting skills developed in the Forex world will also apply when using stock charts.
As for the high casualty rate in any day-trading activity, studies have shown that impatience and the lack of experience are the two contributing factors that make all the difference. Practicing on virtual demo accounts is the only way to address these two issues.
As with any other performance-based activity or profession, the best education is to observe experts at the craft and learn how they have achieved their honored status. It is not about luck. It is all about hard work. “Practice, Practice, Practice” should become your daily mantra before you ever step into the real world and put your own real money at risk. Day-trading, whether in stocks, commodities, or currencies, is a high risk business. However, with proper training and considerable practice, you, too can become a “seasoned veteran”, make good money at it, and have fun in the process, too!
Monday 21 March 2011
Share market investment tipps
Are you a person crazy about shares and how it functions? Are you an individual who looks at others as genius when they discuss about shares and stock market investments? Don’t get frightened about that!
In this site our main aim is to help beginners with interest in shares and stock market investments with fundamentals. This will be a good guide to help you reach the pinnacle from where you are.
We will provide you theory about share market, how it functions, how to invest, what’s mutual funds, when and how to buy etc. as day progresses and your knowledge progresses.
In this site our main aim is to help beginners with interest in shares and stock market investments with fundamentals. This will be a good guide to help you reach the pinnacle from where you are.
We will provide you theory about share market, how it functions, how to invest, what’s mutual funds, when and how to buy etc. as day progresses and your knowledge progresses.
Introduction for share market beginners
Share market is an area which fascinates each and every individual who is craving for more money. Some common phrases are “If we want to earn just try with share markets; my friend has made lot of money in that “.
As beginners we should understand one thing. If we are planning to invest in share market, first we have to categorize our self.
Are we a long term investor?
Are we a short term investor? (Daily trading).
Note:
In share market we are 95% secured if we are ready to wait (provided company fundamentals are good. Exclude cases like enron, worldcom.etc) .The problem comes when we have invested in a bank we can withdraw same amount with interests till date for any of our emergency.
Assume our money is in form of stocks we got an emergency by today evening 7 pm of 1 lakh. We have seen our stock’s worth in today’s closing was our investment 1 lakh+ whatever market price added to it. We think we have more than required and sell it tomorrow. But tomorrow fate decided the other way market falls our stock value becomes 90 thousand. If we sell that’s where the problem comes.
It may even go upto 1.25 laks next week /next month. Can we wait? That’s the million dollar question.
Case1 – short term investor (Risky)
Remember its here we play not invest.
1.Make investment break ups: If we have “x” Rs in our hand don’t get carried away to buy shares for all “x” Rs. Always we should have fifty percent in our hand.
2.Reinvest only when profits: Make the profits what we earn on the first trade if daily trader (if so happens) to buy extra shares. Suppose if 0ur stock didn’t go up after first investment wait till (may be months) till our holding goes up.
3.Capital maintain: Always ensure that our capital is maintained with till date interest rate of banks. Though depository participants suggests us its always better we should have basic ideas of the company. We have lot of information sources (net, softwares).
4.In case of IPO: Buy and sell within max 1 week of IPOS. Invest in established stocks. If we feel trend of IPO is good come back and invest.
5.Sell well ahead of your expected need: Suppose we have a marriage and we wanted money for that. If we feel that today our investment + return (m-cap) is good may be 30 days ahead of marraige.sell it today. We are secured.
The very simple formula will be if we crave for more we have more chances to lose more.
Case 2 – Long term investor
It’s here we invest. We are most secured in this case because we don’t consider money invested to be used for emergency. Any company will one day have a growth curve. Even a sick company value can be raised by psychological factors of investors.
As beginners we should understand one thing. If we are planning to invest in share market, first we have to categorize our self.
Are we a long term investor?
Are we a short term investor? (Daily trading).
Note:
In share market we are 95% secured if we are ready to wait (provided company fundamentals are good. Exclude cases like enron, worldcom.etc) .The problem comes when we have invested in a bank we can withdraw same amount with interests till date for any of our emergency.
Assume our money is in form of stocks we got an emergency by today evening 7 pm of 1 lakh. We have seen our stock’s worth in today’s closing was our investment 1 lakh+ whatever market price added to it. We think we have more than required and sell it tomorrow. But tomorrow fate decided the other way market falls our stock value becomes 90 thousand. If we sell that’s where the problem comes.
It may even go upto 1.25 laks next week /next month. Can we wait? That’s the million dollar question.
Case1 – short term investor (Risky)
Remember its here we play not invest.
1.Make investment break ups: If we have “x” Rs in our hand don’t get carried away to buy shares for all “x” Rs. Always we should have fifty percent in our hand.
2.Reinvest only when profits: Make the profits what we earn on the first trade if daily trader (if so happens) to buy extra shares. Suppose if 0ur stock didn’t go up after first investment wait till (may be months) till our holding goes up.
3.Capital maintain: Always ensure that our capital is maintained with till date interest rate of banks. Though depository participants suggests us its always better we should have basic ideas of the company. We have lot of information sources (net, softwares).
4.In case of IPO: Buy and sell within max 1 week of IPOS. Invest in established stocks. If we feel trend of IPO is good come back and invest.
5.Sell well ahead of your expected need: Suppose we have a marriage and we wanted money for that. If we feel that today our investment + return (m-cap) is good may be 30 days ahead of marraige.sell it today. We are secured.
The very simple formula will be if we crave for more we have more chances to lose more.
Case 2 – Long term investor
It’s here we invest. We are most secured in this case because we don’t consider money invested to be used for emergency. Any company will one day have a growth curve. Even a sick company value can be raised by psychological factors of investors.
Management guru warren buffet analysis
WARREN BUFFET was born on 30th august 1930 in Omaha, NEBRASKA. While in his senior year at the University of Nebraska, Buffet read Benjamin Graham’s book, The Intelligent Investor. This inspired Buffet that after finishing his degree he left to New York to study with Ben Graham at Columbia graduate business school.
There Buffet understood the importance of numbers in investing. He returned back and after the call from graham once again he went back and joined Graham-Newman Company in 1954. In 1956, Graham Newman disbanded. He returned back to Omaha.
With the base of knowledge acquired from Graham he started his investment company when he was twenty-five years old. His family and friends were supported him. In 1961 he bought dempster mill manufacturing company and in 1962 he began purchasing shares in Textile Company called Berkshire Hathaway, which was in miserable condition by that time. Buffet really struggled to turn it into profits. By late 1970s shareholders of Berkshire Hathaway began losing trust. However he didn’t lose heart because he believed
•The textile mills were the largest employer in their area.
•The work force was senior people with skills that cannot be transferred.
•High interest from management
•Reasonable union
With all these reasons he believed that profit can be earned from textile business. As Hathaway entered in 1980s Buffet understood the ground realities.
•Textiles Are Commodities and Commodities Can Least Differentiate Themselves from Their Competitors.
•In Order to Stay Competitive Textiles Have to Invest in Capital Improvements.
•Cheap Labor from Foreign Competition was Disturbing Profits.
Then based on these facts Buffet closed his books of textile group, thus ending the business. However in between 1962 and 1980 Buffet has purchased a lot of companies under Berkshire Hathaway, Insurance, Blue Chip Stamps, See’s Candy Shops, Buffalo News, Furniture Etc.
Even after closing of textile business he acquired many companies. Based on all his experiences compiled Robert. G.Hagstorm in his book gives four tenets that Warren Buffet adapted as his investment strategy
There Buffet understood the importance of numbers in investing. He returned back and after the call from graham once again he went back and joined Graham-Newman Company in 1954. In 1956, Graham Newman disbanded. He returned back to Omaha.
With the base of knowledge acquired from Graham he started his investment company when he was twenty-five years old. His family and friends were supported him. In 1961 he bought dempster mill manufacturing company and in 1962 he began purchasing shares in Textile Company called Berkshire Hathaway, which was in miserable condition by that time. Buffet really struggled to turn it into profits. By late 1970s shareholders of Berkshire Hathaway began losing trust. However he didn’t lose heart because he believed
•The textile mills were the largest employer in their area.
•The work force was senior people with skills that cannot be transferred.
•High interest from management
•Reasonable union
With all these reasons he believed that profit can be earned from textile business. As Hathaway entered in 1980s Buffet understood the ground realities.
•Textiles Are Commodities and Commodities Can Least Differentiate Themselves from Their Competitors.
•In Order to Stay Competitive Textiles Have to Invest in Capital Improvements.
•Cheap Labor from Foreign Competition was Disturbing Profits.
Then based on these facts Buffet closed his books of textile group, thus ending the business. However in between 1962 and 1980 Buffet has purchased a lot of companies under Berkshire Hathaway, Insurance, Blue Chip Stamps, See’s Candy Shops, Buffalo News, Furniture Etc.
Even after closing of textile business he acquired many companies. Based on all his experiences compiled Robert. G.Hagstorm in his book gives four tenets that Warren Buffet adapted as his investment strategy
How to invest on the shares
When I wanted to know about share market investing, I just typed “how to invest in shares” in google and looked for a detailed answer. Most of the time I got a high tech, high funda output but none of the thing helped me as a layman when I was looking for the first brick to build my house.
I just learned by inquiring and practically working on several issues. Now I am an MBA student which further helps me in enriching my knowledge. I am just publishing this article to help beginners practically how to start with stock market investing.To start investing in share trading, we have to open an account called “Demat account” which is called as dematerialised account.
What is a Demat Account?
It is an account which can be compared to a bank account wherein here your shares are in electronic form with its respective value (either purchase price or selling price). Don’t get bogged down by high fundas like “Demat Account”. In simple words, instead of having shares in paper form we are having it in electronic form .That’s it! In early days, stocks and shares are traded in paper form by people gathering in stock exchanges and showing signs of company and price through signals. Even now Chicago stock markets operate in this way. The highest bidder or the one who is quoting for highest price will be awarded the shares. Now you can trade electronically and so you need an electronic format and hence demat. The reverse of “demat” is “remat” and it is not our concern now.
What should I do to open a Demat Account and where?
You can open a demat account with depositary participant (DP). You can compare this DP with a bank. They will charge you for every purchase and every sale you make. To find a list of DP you can type “Depository Participant” in the search engine and find a one close to your location. Some of the notable ones are India bulls and geogith. And most of the banks like ICICI also provide you this option.
What should I have to open a Demat Account?
•You should have a three months bank statement.
•PAN Card.
•An identity proof.
These depository participants will also advice on stocks and shares. However I personally advice you to have market watch before investing. In next article I will further explain how to trade
I just learned by inquiring and practically working on several issues. Now I am an MBA student which further helps me in enriching my knowledge. I am just publishing this article to help beginners practically how to start with stock market investing.To start investing in share trading, we have to open an account called “Demat account” which is called as dematerialised account.
What is a Demat Account?
It is an account which can be compared to a bank account wherein here your shares are in electronic form with its respective value (either purchase price or selling price). Don’t get bogged down by high fundas like “Demat Account”. In simple words, instead of having shares in paper form we are having it in electronic form .That’s it! In early days, stocks and shares are traded in paper form by people gathering in stock exchanges and showing signs of company and price through signals. Even now Chicago stock markets operate in this way. The highest bidder or the one who is quoting for highest price will be awarded the shares. Now you can trade electronically and so you need an electronic format and hence demat. The reverse of “demat” is “remat” and it is not our concern now.
What should I do to open a Demat Account and where?
You can open a demat account with depositary participant (DP). You can compare this DP with a bank. They will charge you for every purchase and every sale you make. To find a list of DP you can type “Depository Participant” in the search engine and find a one close to your location. Some of the notable ones are India bulls and geogith. And most of the banks like ICICI also provide you this option.
What should I have to open a Demat Account?
•You should have a three months bank statement.
•PAN Card.
•An identity proof.
These depository participants will also advice on stocks and shares. However I personally advice you to have market watch before investing. In next article I will further explain how to trade
What is the Mutual Funds
When I was young, my grandmother was a great influencer of my life. Of course still she is! Whenever we plan for a travel she will take the cash and keep some in her wallet some in bag and some in my pocket and some in my mother’s wallet. I asked my grandma why so?
She will say “If you lose one amount by mistake or someone poaches it, the other will help you. Instead, if you keep all in one purse and if you lose the purse you lost the way.”
It was this concept in operations called as buffer, in engineering called as “Safety Factor” and in finance “The Balanced Portfolio“.
Let me try to explain this with two simple stocks for example. Let us consider one stock whose share value increases when index (assume sensex) increases and another stock whose share value decreases as sensex increases. The first one is called as “Positive Correlation” and the second one is called as “Negative Correlation“. The value which we use to measure how much the stock price increases with respect to sensex is called as “Beta“. It is nothing but the slope of the curve drawn in a graph where we take “sensex” (index) value in x-axis over a period of time and stock price in y-axis. So the first stock will have a positive beta value and the second one a negative beta value.
Now assume if you invest in only first stock assuming that sensex will move up and if it goes down you are going to lose a lot. Similarly if you invest in second stock thinking that sensex will go down and if it increases you will once again lose. Incase, if you invest in both the stocks (in proportion to how much their price vary according to the sensex index) you may not get maximum return but whatever be the sensex(index) movement bullish(upward) or bearish(downward) you will get optimum return. This is how mutual funds choose their stocks in their portfolio and maximize their returns and minimizes their risk.
But choosing stocks is not that easy as we mentioned. Many things in life are written but done with sweat. This is not an exemption for that. Based on this principle, some funds choose stock pertaining to only one sector called “sector funds“. Some in proportionate amount listed in all sectors in an index called “index funds” and so on.
This is simple thing we can also do as an investor by tracking the stock price. Instead of investing one stock, pick two or three by logics (or use tools if you can) and we can minimize risk.
And hope a few who benefit out of this will always be thankful to my great investment guru “my grandmother”.
She will say “If you lose one amount by mistake or someone poaches it, the other will help you. Instead, if you keep all in one purse and if you lose the purse you lost the way.”
It was this concept in operations called as buffer, in engineering called as “Safety Factor” and in finance “The Balanced Portfolio“.
Let me try to explain this with two simple stocks for example. Let us consider one stock whose share value increases when index (assume sensex) increases and another stock whose share value decreases as sensex increases. The first one is called as “Positive Correlation” and the second one is called as “Negative Correlation“. The value which we use to measure how much the stock price increases with respect to sensex is called as “Beta“. It is nothing but the slope of the curve drawn in a graph where we take “sensex” (index) value in x-axis over a period of time and stock price in y-axis. So the first stock will have a positive beta value and the second one a negative beta value.
Now assume if you invest in only first stock assuming that sensex will move up and if it goes down you are going to lose a lot. Similarly if you invest in second stock thinking that sensex will go down and if it increases you will once again lose. Incase, if you invest in both the stocks (in proportion to how much their price vary according to the sensex index) you may not get maximum return but whatever be the sensex(index) movement bullish(upward) or bearish(downward) you will get optimum return. This is how mutual funds choose their stocks in their portfolio and maximize their returns and minimizes their risk.
But choosing stocks is not that easy as we mentioned. Many things in life are written but done with sweat. This is not an exemption for that. Based on this principle, some funds choose stock pertaining to only one sector called “sector funds“. Some in proportionate amount listed in all sectors in an index called “index funds” and so on.
This is simple thing we can also do as an investor by tracking the stock price. Instead of investing one stock, pick two or three by logics (or use tools if you can) and we can minimize risk.
And hope a few who benefit out of this will always be thankful to my great investment guru “my grandmother”.
Technical analysis in share Market
Share market experts rely on two analysis before selecting a share for investment.
One is technical analysis: In which a share’s movement of price and volume is studied over years and they try to strategize the movement.
Fundamental analysis: In which they study about the company associated with that share, its sector growth etc.
However a genuine investor cares more about fundamental analysis of a company because the price of a share can be manipulated to go up or down. if this there on one side ,as I already said nowadays information about company and sector performance reaches all at the same time through media ,fundamental analysis also became a more common feature known to all experts.
When the share hasebeen trading there are four pricing levels are available:
1.Opening Price: The price at which the first trade is done or the market opens
2.Closing Price: The price at which last trade is done or When the market closes.
3.Intra-Day High: The maximum price the share was traded for the day.
4.Intra-Day Low: The minimum price the share was traded for the day.
This is simple ideal graph by which I am trying to explain you all the simplest way of predicting and investing. The share price is plotted for various days in a graph as shown above. Using statistical tools the trend line is derived. It will be observed that prices follow a particular pattern.
One is technical analysis: In which a share’s movement of price and volume is studied over years and they try to strategize the movement.
Fundamental analysis: In which they study about the company associated with that share, its sector growth etc.
However a genuine investor cares more about fundamental analysis of a company because the price of a share can be manipulated to go up or down. if this there on one side ,as I already said nowadays information about company and sector performance reaches all at the same time through media ,fundamental analysis also became a more common feature known to all experts.
When the share hasebeen trading there are four pricing levels are available:
1.Opening Price: The price at which the first trade is done or the market opens
2.Closing Price: The price at which last trade is done or When the market closes.
3.Intra-Day High: The maximum price the share was traded for the day.
4.Intra-Day Low: The minimum price the share was traded for the day.
This is simple ideal graph by which I am trying to explain you all the simplest way of predicting and investing. The share price is plotted for various days in a graph as shown above. Using statistical tools the trend line is derived. It will be observed that prices follow a particular pattern.
What are the Futures and Options
For this Futures and options have initially first we have to understand what is the derivatives.
Derivatives are instruments whose value depends on value of the underlying asset. What do you mean by the above mentioned statement? Let’s take an example of an orange juice. The value of an orange juice depends on the value of the underlying asset orange. Hence orange juice can be termed as a derivative of orange.Like that the value of derivatives that we are going to discuss here will rely on the value of underlying asset. Here the underlying asset can be commodities (wheat, rice, oil seeds etc), metals, currency, stocks.basically derivatives in finance parlance can be classified into four headings.
There are TWO Types of contracts:
Forwards Contracts:
Futures contracts:
1) Forward contract: it is nothing but an aggrement between two parties to buy a product in future date whose price is determined by the present.
Generally everyone in this world are scared about uncertainties due to inflation, monsoons etc which leads to price raise.So the buyer agrees to buy the product at a future date at a price determined today with the risk minimizing attitude of if price goes very high I am safe that I can buy with the determined price. If price goes very high the buyer is benefited and if it falls the seller is benefited. This generally happens in agricultural commodities because of unpredictability of monsoons.IN Later days lot of people started to take a backseat when loss comes to them. So people thought about other ways of solving this problem. Here came futures and options.
Future contracts
This is same as forward contracts but here we have two differences.
1. It takes place with the presence of third party (the exchange)
2. It is just a notional commitment between the parties
Derivatives are instruments whose value depends on value of the underlying asset. What do you mean by the above mentioned statement? Let’s take an example of an orange juice. The value of an orange juice depends on the value of the underlying asset orange. Hence orange juice can be termed as a derivative of orange.Like that the value of derivatives that we are going to discuss here will rely on the value of underlying asset. Here the underlying asset can be commodities (wheat, rice, oil seeds etc), metals, currency, stocks.basically derivatives in finance parlance can be classified into four headings.
There are TWO Types of contracts:
Forwards Contracts:
Futures contracts:
1) Forward contract: it is nothing but an aggrement between two parties to buy a product in future date whose price is determined by the present.
Generally everyone in this world are scared about uncertainties due to inflation, monsoons etc which leads to price raise.So the buyer agrees to buy the product at a future date at a price determined today with the risk minimizing attitude of if price goes very high I am safe that I can buy with the determined price. If price goes very high the buyer is benefited and if it falls the seller is benefited. This generally happens in agricultural commodities because of unpredictability of monsoons.IN Later days lot of people started to take a backseat when loss comes to them. So people thought about other ways of solving this problem. Here came futures and options.
Future contracts
This is same as forward contracts but here we have two differences.
1. It takes place with the presence of third party (the exchange)
2. It is just a notional commitment between the parties
What Are options ?
There are Two options available in share market:
1) Call Option.
2) Put Option.
This is in continuation of my last article on derivatives.
An option is nothing but a Right Given to the Holder of the Option. It may be a Right to Sell Or Right to Buy. The right to sell option is called a put option and right to buy option is called as call option.
When a person buys an option note only the right is transferred. Then the question arises how a seller can make profit out of it even if it is not executed on the maturity date. The buyer of the option has to necessarily pay a premium called option premium for buying that option. The buyer can buy a put option or a call option. The simple logic is a buyer who expects a price rise will buy a put option for a price determined today and a buyer who expects price fall will buy a call option. Call and put options are there in stocks, commodities etc.
1) Call Option.
2) Put Option.
This is in continuation of my last article on derivatives.
An option is nothing but a Right Given to the Holder of the Option. It may be a Right to Sell Or Right to Buy. The right to sell option is called a put option and right to buy option is called as call option.
When a person buys an option note only the right is transferred. Then the question arises how a seller can make profit out of it even if it is not executed on the maturity date. The buyer of the option has to necessarily pay a premium called option premium for buying that option. The buyer can buy a put option or a call option. The simple logic is a buyer who expects a price rise will buy a put option for a price determined today and a buyer who expects price fall will buy a call option. Call and put options are there in stocks, commodities etc.
How the US Markets Effect indian Market
It is lending to people who are less capable of repaying (More credit risk; Less credit worthiness).In US some institutions has lend loans like this to such people(less capability to repay). Since they are high risk loans interest rate will be high. These institutions also adopt a process called securitization (conversion of these loans into tradeable securities).
So it led to non-performing assets in banks balance sheet. So investors in these bonds started selling their bonds which pull down the us stock market. Everyone wanted to take their money in these bonds as loans are not repaid.
It had an impact on Indian stock market as well some people who lost their money also wanted to compensate their loss by selling shares they holded in Indian companies, this pulled back Indian stock market also for a while.
What did US GOVERNMENT DO to minimize this risk? They cut down the interest rates so that people will borrow at lesser rate and invest. But this helped Indian market also because they borrowed in us at lesser rate and invested in Indian market which is bullish now.thats is why our market adjusted very quickly.
Rupee appreciation:
It means i am able to but dollar at a cheaper rate.
That is for a particular amount of rupee I can buy more dollars.
When it happens. When we have sufficient amount of dollars in hand we don’t need more. When US depends on Indian goods they have to pay in rupees and they exchange their dollars for rupees with RBI and hence we have more dollars. When investments from US come into India also this exchange takes place and hence we have more dollars and rupee appreciates.
Right now because of last reason our rupee has appreciated.
But some domestic manufacturers who manufacture and sell in India will get affected by substitute import products because they become cheaper.
What RBI has done to curb appreciation is open up investment opportunities for Indians in US. That means they allow them to invest more in us there by more dollars will be demanded by them to invest and dollar demand will raise and rupee appreciation will come down.
So it led to non-performing assets in banks balance sheet. So investors in these bonds started selling their bonds which pull down the us stock market. Everyone wanted to take their money in these bonds as loans are not repaid.
It had an impact on Indian stock market as well some people who lost their money also wanted to compensate their loss by selling shares they holded in Indian companies, this pulled back Indian stock market also for a while.
What did US GOVERNMENT DO to minimize this risk? They cut down the interest rates so that people will borrow at lesser rate and invest. But this helped Indian market also because they borrowed in us at lesser rate and invested in Indian market which is bullish now.thats is why our market adjusted very quickly.
Rupee appreciation:
It means i am able to but dollar at a cheaper rate.
That is for a particular amount of rupee I can buy more dollars.
When it happens. When we have sufficient amount of dollars in hand we don’t need more. When US depends on Indian goods they have to pay in rupees and they exchange their dollars for rupees with RBI and hence we have more dollars. When investments from US come into India also this exchange takes place and hence we have more dollars and rupee appreciates.
Right now because of last reason our rupee has appreciated.
But some domestic manufacturers who manufacture and sell in India will get affected by substitute import products because they become cheaper.
What RBI has done to curb appreciation is open up investment opportunities for Indians in US. That means they allow them to invest more in us there by more dollars will be demanded by them to invest and dollar demand will raise and rupee appreciation will come down.
Indian Stock Market
I was a common man who was watching the market silently but sounds from media and analyst’s everyday crossing decibels.
As I always said don’t be a herd in the market. Have your own taste of success or failure in the stock market. If you really study the fundamentals of the company not by Ratios or High funda financial terms but by common knowledge it will form the basis first in most of the times.
First let me put my views on the market.
What’s the reason for Bull Run till now?
It’s simple. The value of Indian companies were reaching heights because we had investors buying from outside.
We have to agree that it was over valued to a certain extent because of the bullish mentality of FIIs and the credit availability terms they had like less interest rates etc.
What happened suddenly and markets became bearish?
When credit was tightened and interest rates were hiked in US most of the mortgage loans were on floating rate and many people defaulted.
This led to liquidity crises for lenders.
There arouse a demand for money in US market.
FIIs so who needed money started to sell their investments in India to get back money for their livelihood and hence notional value of Indian stocks are going done.
Indian economy is certainly insulated.
Indian economy in terms of imports is not much dependent on US.
The good part of the story is that unlike China, which had an export oriented economy, the Indian economy was based on the domestic market. The India’s trade theory is changing a lot as it is turning out to be more of a manufacturing export oriented country. The net trade of services done by India accounts to about just 22% just reflecting the risk on trade services is tried to be minimized. Also in the current scenario the trade practices of India with US has decreased and on the other hand has relatively increased with China reflecting out that the risk of US recession has been deflected.
Also recent crisel research indicates
Indian banks have limited vulnerability. (CRISIL RESEARCH).
Indian banks’ global exposure is relatively small.
International assets at about 6% of total assets.
Even banks with international operations have less than 11% of their total assets outside India.
The reported investment exposure of Indian banks to troubled international financial institutions of about $1 billion is also very small.
What’s Behind Indian Companies?
Just take a company like HERO HONDA. Just let’s look from layman point of view. I had invested two years back and it never went up and it is going up now. In an average Indian mindset this bike is something very common. The availability of credit will impact the sales but it won’t have a drastic impact since it is almost a necessity as far as Indian market is concerned when compared to other industry. I am not saying blindly buy by this. Take this as core then do all fundamental and technical analysis and ponder on it.
Indian companies’ debt equity ratios are decent. Nothing like there is an internal failure in terms of technology or accounting malpractice.
Only thing is companies in IT sector got projects from US and when their economy is down no projects and hence no profit and its effect will be there in other industry as well.
So the basic thing is that there is money problem which Indian investors thought that their investments will go up but no one to buy their portfolios. Others who has gained some profit turned towards safer side seeing the risk in the market.
RBI measures will benefit banks on short run and companies on short run but the pumped in 1.4 lakh crores by CRR cut and others will be useful for stabilization if the companies gain back their money which they have as inventories before the money pumped by RBI is eroded as working capital.
This is a slow process and it will take nearly a year for the positive sentiment to gain back in the market but our companies are fundamentally strong with less overseas exposure in their investments in the collapsed financial institutions.
As I always said don’t be a herd in the market. Have your own taste of success or failure in the stock market. If you really study the fundamentals of the company not by Ratios or High funda financial terms but by common knowledge it will form the basis first in most of the times.
First let me put my views on the market.
What’s the reason for Bull Run till now?
It’s simple. The value of Indian companies were reaching heights because we had investors buying from outside.
We have to agree that it was over valued to a certain extent because of the bullish mentality of FIIs and the credit availability terms they had like less interest rates etc.
What happened suddenly and markets became bearish?
When credit was tightened and interest rates were hiked in US most of the mortgage loans were on floating rate and many people defaulted.
This led to liquidity crises for lenders.
There arouse a demand for money in US market.
FIIs so who needed money started to sell their investments in India to get back money for their livelihood and hence notional value of Indian stocks are going done.
Indian economy is certainly insulated.
Indian economy in terms of imports is not much dependent on US.
The good part of the story is that unlike China, which had an export oriented economy, the Indian economy was based on the domestic market. The India’s trade theory is changing a lot as it is turning out to be more of a manufacturing export oriented country. The net trade of services done by India accounts to about just 22% just reflecting the risk on trade services is tried to be minimized. Also in the current scenario the trade practices of India with US has decreased and on the other hand has relatively increased with China reflecting out that the risk of US recession has been deflected.
Also recent crisel research indicates
Indian banks have limited vulnerability. (CRISIL RESEARCH).
Indian banks’ global exposure is relatively small.
International assets at about 6% of total assets.
Even banks with international operations have less than 11% of their total assets outside India.
The reported investment exposure of Indian banks to troubled international financial institutions of about $1 billion is also very small.
What’s Behind Indian Companies?
Just take a company like HERO HONDA. Just let’s look from layman point of view. I had invested two years back and it never went up and it is going up now. In an average Indian mindset this bike is something very common. The availability of credit will impact the sales but it won’t have a drastic impact since it is almost a necessity as far as Indian market is concerned when compared to other industry. I am not saying blindly buy by this. Take this as core then do all fundamental and technical analysis and ponder on it.
Indian companies’ debt equity ratios are decent. Nothing like there is an internal failure in terms of technology or accounting malpractice.
Only thing is companies in IT sector got projects from US and when their economy is down no projects and hence no profit and its effect will be there in other industry as well.
So the basic thing is that there is money problem which Indian investors thought that their investments will go up but no one to buy their portfolios. Others who has gained some profit turned towards safer side seeing the risk in the market.
RBI measures will benefit banks on short run and companies on short run but the pumped in 1.4 lakh crores by CRR cut and others will be useful for stabilization if the companies gain back their money which they have as inventories before the money pumped by RBI is eroded as working capital.
This is a slow process and it will take nearly a year for the positive sentiment to gain back in the market but our companies are fundamentally strong with less overseas exposure in their investments in the collapsed financial institutions.
Airlines face major slowdown due to Japan
The nuclear and earthquake crises in Japan will cause the airline industry a “major slowdown” it will not start to recover from until at least the second half of 2011, industry body IATA said on Friday.
IATA said the most exposed international market to Japanese operations was China, where Japan accounts for 23 percent of its international revenues.
Taiwan and South Korea were equally exposed with 20 percent of their revenues related to Japanese operations, followed by Thailand (15 percent), the United States (12 percent), Hong Kong (11 percent) and Singapore (9 percent.
JET FUEL
Japan produces 3-4 percent of global jet fuel supply, some of which is exported to Asia, IATA said.
“Some of this refinery capacity has been lost due to damages caused by the earthquake,” it said. “This supply restriction could lead to higher jet fuel prices”.
IATA said the most exposed international market to Japanese operations was China, where Japan accounts for 23 percent of its international revenues.
Taiwan and South Korea were equally exposed with 20 percent of their revenues related to Japanese operations, followed by Thailand (15 percent), the United States (12 percent), Hong Kong (11 percent) and Singapore (9 percent.
JET FUEL
Japan produces 3-4 percent of global jet fuel supply, some of which is exported to Asia, IATA said.
“Some of this refinery capacity has been lost due to damages caused by the earthquake,” it said. “This supply restriction could lead to higher jet fuel prices”.
Stock Market tips
•Always follow the market trend, buy in rising markets and sell in falling markets
•Always stick to your strategy
•Decide target and stop-loss before entering the stock
•Never chase a stock
•Follow the stock market trend and lookout the trend of indices - Nifty & Sensex before taking a position
•Trade less but trade profitable
•Don't hesitate to book losses
•Don't trade just for the sake of trading
•Always remember market is not only about buying it also involves short selling
•Always stick to your strategy
•Decide target and stop-loss before entering the stock
•Never chase a stock
•Follow the stock market trend and lookout the trend of indices - Nifty & Sensex before taking a position
•Trade less but trade profitable
•Don't hesitate to book losses
•Don't trade just for the sake of trading
•Always remember market is not only about buying it also involves short selling
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