Monday, 30 April 2018

Explanation about Swing Trading, Arbitrage, Hedging, BTST and STBT Trading in Stock Market

Swing Trading:

In swing Trading position is taken with a view of short term resistances and supports, and trader tries to make the profit by moving fast in such scenarios. For Example, if long term trend is down, still the stock can show a pull back for say 4 to 5 days. A swing trader takes advantage of such movements. In case of swing trading, person has to act quickly one has to always book profit in time, as pullbacks doesn’t last longer, and the profits can be wiped out fast, if not booked at correct time.

Only those traders must try to trade intraday and initiate swing trades who are in regular touch of market, and have monitoring options with them. Those who are on the move and don’t have real time price monitoring options at hand must stay away from such positions. As intraday moves are swift, and swing moves are also swift, so timing is the key in such positions.

B.T.S.T (Buy Today Sell Tomorrow):

Buy Today Sell Tomorrow (B.T.S.T) is a strategy adopted when the trader see that today market is good, and next day also expect markets to open firm, and the stock is expected to open up in gap.

In such scenario, if the trader is holding 300 shares of one particular company, the trader can buy additional 300 shares of it to be sold next day. Now if the stock shows positive movement next day, trader can make profit on the additional 300 shares, which the trader sells it next day. Original 300 shares still remain in trader’s account and trader can profit on the additional shares bought by doing B.T.S.T.

S.T.B.T (Sell Today Buy Tomorrow):

Sell Today Buy Tomorrow (S.T.B.T) is done when the trader see market is weak today, and next day also think that markets may decline a little more. To take advantage of this trader can sell the stock that trader is holding to be bough the next day. 

For Example, If trader is holding 2 lots in one particular company in future, trader sell 2 lots on that day and buy back the 2 lots on next day at lower prices, thus making profit of decline. 

Always do S.T.B.T only if the expected decline is minimum or big. In case of a big decline, one must exit the stock, and wait till it takes support and not try to buy it the very next day.

Arbitrage:


NYSE - NEW YORK STOCK EXCHANGE

LSE - LONDON STOCK EXCHANGE

Arbitrage is defined as where risk in almost non-existent. In this advantage is taken of the price differences that prevail on different exchanges for the same stock. Risk is non-existent, as this is all about spotting the price differences, which shows clear profit present, and its not a prediction where the trader have to wait for the expected moves.

In arbitrage, one has to have adequate funds and stocks at hand. There are people who lend stocks and let people do arbitrage by asking a certain percentage in profit. This is an excellent option for those who are prepared to spend time in front of the terminal and spot and take advantage of price differences. They can make earn money.

Hedging:

Hedging is defined to reduce risk of adverse price movements in security, by taking offsetting position in related instruments like options or futures. But through hedging we can reduce the impact of that negative event on our portfolio. Hedging reduces risk, but it also can reduce the potential profits. 

As opposite positions are taken in hedging, if the hedging position is not reversed in time, we will lose profits that are receivable during an uptrend. So it should be clear to us that with the help of hedging we won’t generate positive cash flow. If applied efficiently, it will definitely safeguard us against the potential losses. Most portfolio managers, use hedging as an effective tool to reduce their exposure to various risks prevalent in this field.






Tuesday, 24 April 2018

Future Contracts and Options Terminologies, Types of stock option and its Advantages

Future Contracts:

Currently futures of many stocks, index and commodities are available for trade.

Why can buy Futures?


It is a misapprehension in market that only those who can take more risk in the market must consider trading in futures; others must stay away from it. One fails to understand here that its not just about risk, but lot of factors are involved in it. It is definitely a risky product, as the profit and loss probability is unlimited. One can make unlimited loss in a future, and one can make unlimited profits from it.

In futures one has to trade within a certain time limit, and if they don’t have adequate mark to market and margin money at hand, they end up in compulsory losses. So one has to take positions with all the factors in mind and need to have extra money at hand to pay mark to market and margin as and when required.

Who mustn’t enter the Futures Market?

Those who don’t have adequate margin and market –to-market money at hand must never enter futures market. As such people will mostly end up making the loss, which could be huge. People who can’t take rational decisions and follow the strict rules should not enter into the futures market. One has to strictly follow the stop loss and straggling stop principles to cut losses in time, and also be able to take most of the profits habitat. Those who don’t develop these skills must never think of stock futures.

Warren Buffet has exactly said that” Derivatives Instruments are Financial Weapons of Mass Destruction”. It is the truth because most of the people are unskilled to trade such complex mechanisms, and when they try to trade with inadequate knowledge, they always end up making the huge losses, where not only their capital is battered, but they incur fresh loss, which they have to pay by selling their precious assets. So first become a trained and disciplined trader and only then think of entering futures market. It is also a fact that those who obtain these skills can make a fortune by trading futures.

Options:


Options are of two types. They are

  • Call Option
  • Put Option

Call Option:


Call Option is defined as to gives the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date.

Put Option:


Put Option is defined as to gives the buyer the right but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.

  • When one is bullish, they buy a call option
  • When one is bearish, they buy a put option

Options Terminology:

American Option:
An American Option, which can be exercised any time on or before the expiry date.

European Option:

An European Option, which can be exercised only on expiry date.

Strike Price/Exercise Price:

Price at which the option is to be exercised.


Expiry Date:

Date on which the option expires.

Exercise Date:

Date on which the option get exercised by the option holder/buyer.

Option Premium:

The price paid by the option buyer to the option seller for granting the option.
Difference in case of buying options and futures is that in options in the loss is limited and profits can be unlimited. Those who want to take less risk can go for stock options.

Advantages of Stock Options:

  • Highly Leveraged, as minimum capital required is less
  • Pre-known maximum risk for an stock option buyer.
  • Highest returns probable and limited risk for stock option buyer.
  • One can protect his equity portfolio from a decline in the market.







Monday, 23 April 2018

How to Make Money in NSE Stock Market

Options to Make Money in Stock Market:


Everyone can make money in Stock Market in following ways:-

  • Investment (Delivery Based Trade)
  • Speculation (Intraday and Derivatives Positions)
  • Hedging and Arbitrage
  • Margin Funding
  • Dividend Income

Investment:


Those who want to hold a stock for a few days or few months or a few years, they have to take delivery of the stock. Such stocks are bought through trader’s stock broker, which is then transferred to trader’s demat account, where it stays in electronic form, and trader can get a statement of it on monthly or quarterly basis, as opted by trader, which shows the balance of stocks trader will hold in demat account. This option is for such people who want to buy shares as per the spare amount they have at hand. One must always remember, that trader cannot employ buy and forget strategy in case of shares.

In Investment Strategy, we have to take care of the shares. For Example : When we sow the seeds, we have to take care of it. Later it will grow into a big tree and stand fruits. Same in the case with investment in stock/share market. If fruits are not get in time, they will rot, in same way,one has to learn to book profits on time to make good profits on investments. If proper monitoring and care is taken,stocks can give extraordinary returns in the long term. Moreover, One can also do BTST and STBT in stocks that traders are holding for longer periods.

Speculation:

Speculation can be done by taking intraday speculation as well as derivatives positions.

Intraday Speculation:


In Intraday Trading, a stock is bought and sold on the same day, with the profit or loss. Delivery is not taken in this case. Major aim of intraday trading is to try and take advantage of intraday movements speculated by various stocks. If trading is done after proper study, with the monitoring through intraday charting software, it can result into positive cash flows. But If trading is done unsystematically, it becomes gambling.


In Intraday Trading at the end of the day position is to be compulsorily squared off, whether the end result is positive (profit)or negative(loss). One must never take delivery to avoid in intraday loss. But unfortunately, most people when suffer from intraday loss they end up taking delivery which is not always advisable. If one does not have the adequate holding capacity, losses can increase due to this.

Derivative Speculation:

Derivatives are the monetary mechanism that are linked to a particular economic pointer or indicator or commodity and through which exact financial risks can be traded in financial markets in their be in possession of right. The assessment of a financial derivative derives from the cost of an underlying item, such as the index.

There are two primary forms of derivatives:

  • Futures
  • Options



Futures:


The Future Contracts are a concurrence between two persons to buy or sell an asset at a certain time in the future at an assured price. Future Contracts are special types of forward contracts in the sense that the earlier are standardized exchange-traded contracts.
Futures Terminology:

Lot Size:

Every Future Contract has a specific lot size. At a given time, there are 3 months contract open to trade. For example, if current month is April, then futures for April, May and June month are available to trade.

Expiry:


Every Future Contract expires on the last trading Thursday of the month. So those don’t sell their future before last trading Thursday, their lots get squared off at the closing price on the expiry day.

Margins:

One has to pay initial margins to buy a future. It could be anywhere from 10% to 25% in a normal market conditions, and the margins could rise in volatile markets.

Mark-to-Market:


After buy the future, mark to market is calculated daily based on the difference of closing price from buy price.
If the difference is positive, then the amount gets credited in trader’s account. If the difference is negative, one has to pay the respective mark to market.
After the position is squared off, if its in positive, one gets the profit and margins back. If its in negative, and if one has paid mark to market losses at regular intervals, then one gets the margin back.
If one fails to pay the mark to market losses, those losses are cut from the initial margins, and the surplus left is paid back.





Sunday, 22 April 2018

Index,Sensex , S&P CNX Nifty and NIFTY 50 Listed Companies

Index:


An index is benchmarket used for measuring the performance of fund managers and is a comprehensive measure of market trends, intended for investors who are concerned with general stock market price movements. A Stock Market Index is a hypothetical case of securities designed to track market changes. 

Stock Market Index is a measuring the segment of the stock market. Many indices are quoted by news or financial services companies and are used as benchmarks, to measure the performance of portfolios such as mutual funds. Stock Market Indices are very useful in understanding the level of prices and the trend of price movements of the stock/share market. The Stock Market index performs as the indicator of the performance of the economy or a sector of the company. The Most widely followed US Stock Market Indexes are:
  • DJIA
  • S&P 500
  • NASDAQ Composite
  • Important International stock market indexes are the Nikkei 225 (Japan)
The Index comprises stocks that have large liquidity and market capitalization. Each stock is given a weightage in the index equivalent to its market capitalization.
  • BSE Index - Sensex
  • NSE Index – S&P CNX Nifty 50


Sensex:


Sensex has become the barometer of the Indian Stock Market. Its comprised of 30,well-established and financially sound companies. Sensex first compiled in 1986, was calculated on a “Market Capitalization-Weighted-Method”. Now Sensex is calculated using the “free-Float Market Capitalization” Methodology.

S&P CNX Nifty:

Nifty is a good-expanded 50 stock index secretarial for 22 zones of the financial system. This Index was launched in 1996. It is the first index constructed by the National Stock Exchange (NSE).It is slightly different from that of sensex. Sensex measures the capitalization of its constituents, however, Nifty is a step behind, it takes the full capitalization of its 50 constituents. Nifty was first compiled in 1955 with the base value of 1000. It is used for a diversity of purposes such as benchmarking fund portfolios, index based derivatives and index funds. Currently Futures and Options are available in Nifty.

NSE has made the Following Changes in the composition of Nifty 50 Index Effective From April 1, 2017.

Removed:
·         BHEL
·         IDEA (Idea Cellular)

Added:
·         Indian Oil Corporation ( IOC)
·         India Bulls Housing Finance


LIST OF CNX 50 COMPANIES

SECTORS
CONSTITUENTS


PHARMACEUTICALS (PHARMA)
CIPLA

DR. REDDY’S LAB

LUPIN

SUNPHARMACEUTICAL (SUNPHARMA)

AUROBINDO PHARMA (AUROPHARMA)



INFORMATION TECHNOLOGY
HCL TECHNOLOGIES

INFOSYS

TCS

TECH MAHINDRA (TECHM)

WIPRO



CEMENTS
ACC

AMBUJA CEMENTS (AMBUJACEM)

GRASIM INDUSTRIES

ULTRATECH CEMENT





  



 AUTO MOBILE
BAJAJ AUTO

BOSCH

HERO MOTOCORP

MAHINDRA & MAHINDRA (M&M)

MARUTI SUZUKI

EICHER MOTORS

TATA MOTORS

TATA MOTORS LTD (DVR)



             
FINANCIAL SERVICES


AXIS BANK

BANK OF BARODA

HDFC

HDFC BANK

ICICI BANK

INDIABULLS HOUSING FINANCE

INDUSIND BANK

KOTAK MAHINDRA BANK

STATE BANK OF INDIA (SBI)

YES BANK

  



 METALS
COAL INDIA

HINDALCO INDUSTRIES

TATA STEEL




    


 ENERGY
BPCL

GAIL INDIA

IOC

NTPC

ONGC

POWER GRID

RELIANCE INDUSTRIES

TATA POWER




 TELECOM

BHARTI AIRTEL


BHARTI INFRATEL


CONSUMER GOODS
ASIAN PAINTS

HINDUSTAN UNILEVER

(HINDUNILVR)



CONSTRUCTION



LARSEN & TURBO (L&T)




   CIGARETTES




  ITC


   MEDIA & ENTERTAINMENT


   ZEE ENTERTAINMENT



 SHIPPING


ADANIPORTS AND SPECIAL ECONOMIC ZONE LTD