‘Margin” means borrowing money from your broker to buy a stock. Now the question is why would you borrow? Investors generally go for trading on margin so to increase their purchasing power so that they can own more stock without fully paying for it. That means you will pay a part of the buy price and the broker will lend you the difference.

For the loan you have taken -

• You will pay interest in addition to the usual fees.
• Broker will hold the stocks as collateral and has the right to sell that as well in case buyer doesn’t meet certain obligations as per margin rules and agreements.

Let us understand this with an example:

Suppose you wish to buy a stock with market price of Rs 50.  Under margin trading, you would be paying Rs 25 in cash while remaining 25 Rs will be lent to you by the broker (Assuming the initial margin requirement with your broker is 50%). How does this help? Let’s see.  Suppose the price of the stock rises to Rs 75.

In case of Margin trading – Your return on the investment is 100% because you paid Rs 25.

In case of normal trading – Your return on investment is 50% because you paid Rs 50.

However there is also an equal probability of higher loss for trading on margin. Suppose the stock price falls to Rs 25. If you fully paid for the stock, you lost 50 percent of your money. But if you have traded on margin, you lost 100 percent. And on the top of that you are supposed to pay interest for the loan you have taken from the broker along with the broker’s commission. Moreover if the investor doesn’t maintain minimum margin in his account the broker will have the right to sell all your stocks without notifying you. By this you would even loose the chance to make up your losses when the price goes up later. Below are certain terms that would make the concept more clear.

Initial margin: The proportion of total purchase price an investor is supposed to deposit for opening a margin account is referred as its initial margin and is generally 50% of the total value.

Maintenance margin: In order to keep the margin account open for doing margin trading, it is necessary to maintain minimum cash or marginable securities which is called the maintenance margin. This is just to prevent an investor from incurring a level of debt that he would not be able to repay.

Margin call: If your account falls below the maintenance margin, your broker will make a margin call to ask you to deposit more cash or securities into your account. If case you fail to meet the margin call, your broker will sell your securities so to make up for the stipulated maintenance requirement.

Lastly, for novice traders it is very important to have a realization that trading on margin can help you magnify your profit and at the same time multiplies the associated risks.

Happy DIWALI and Happy Investing

Renuka Kinger

For buyers; consider a share continuously moving down over a period of time and you find the fall in the price as a buying opportunity. To decide your entry price, support level is there to help you. Since the stock is unlikely to go below this level, you can opt to buy at this level without fearing any risk of further downfall and aiming to take an opportunity to buy.

For sellers; consider a share continuously moving up and your aim is to have maximum profit margin and take a profitable exit. Thus to decide upon an exit price, Resistance level is what you should look for. Since the stock is more likely to “bounce” off this level rather than breaking through it, you can sell your stock for better returns.

In generic terms, for a stock trading between support and resistance levels, the strategy of a trader should to buy a stock at support and sell at resistance. For traders involved in short selling short at resistance and then cover the short at support.

As a part of technical analysis there is no denying the fact that support and resistance can help you benchmark your decisions but it is very important not to assume that these levels will not breach at all.

It is likely that a declining stock breaches a support level and continues dropping until it finds another support level. This is called breakdown and usually occurs when number of Buyers willing to step in to buy exceeds the supply available from sellers willing to sell. On the similar note, a rising stock may also breach the resistance level and continue rising till it finds another resistance level.  This occurs when the supply available from sellers willing to sell is greater then the demand from buyers willing to step in to buy. This is as simple as the concept of “demand and supply”. But next time you make a buy/sell decision, do take few minutes to have a look at these levels to enjoy its crunch.

All the best…

Renuka Kinger

Trading online has become very popular in today’s time when you just need a trading account and after that you can trade comfortably while sitting at your home. Apart from comfort of trade it provides various facilities like:

• Ease of buying and selling of shares.
• Online receipt of contract notes/ trade statement for the transactions.
• Direct deposits of dividends/ bonus amount etc to account.
• Various trading tools for ease of making investment decision.

One click of mouse button is of ample importance while trading online because sometimes it is what that draws a line between your winning or loosing the game. Trading online is very interesting but you have to be a bit careful as well. The process of trading is very easy but making money is a bit tricky. All you need is a trading account and a little bit of caution to operate the same. Below are some do’s and don’ts while trading online:

Prices change at the blink of eye and the transactions are not always in real time. Moreover the speed of your internet might cause delay. So always make sure not to change your decision until the last moment. Take time examining the stock and make decision ahead of time so that you don’t loose while in panic.

An important feature of stock markets is volatility. So if you don’t keep a close eye on how your stocks move while placing an order, you might land up in losses.

Online trading is a matter of trust between you and your broker because there is no in-person contact. But you can’t leave everything on trust. Make sure your broker provides you detailed email statements and contract notes of executed trades.

Online trading provides facility to place limit orders. If you don’t have sufficient time to keep track of the stock prices, fix up a buy/sell price based on your judgement and go for limit orders. Moreover limit orders help you take ample advantage of volatile session during the day.

In addition to the brokerage rate being paid, prudent investor should always be well aware of the various Fees and commissions charged by the broker for various services offered like Mobile services, buy sell alerts, reporting, chart and other tools to facilitate easy trade as they really affect your net earnings.

For novice traders, it’s a suggestion to always trade with stop losses. Set your stop loss to level to avoid the risks associated.

Even though chances of default by a good brokerage firm are nil but a smart investor should always keep track of credit/debit of money in their bank accounts or transfer of shares to/from the demat account accordingly for each trade executed because technical reasons might lead to discrepancy which cannot be avoided.

Prevention is always better than cure. Security is another important factor for online traders. It is advisable always to follow security measures related to passwords and other personal information while login into the websites to eliminate chances of theft of identity and information.

RENUKA KINGER

Wikipedia defines Forex Trading as “The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies.”

With the current economic scenario, increasingly more folks see themselves prepared wherever they have to help make additional funds to carry on living to their standards. Additionally , there are individuals who learn how to make very good utilization of present day condition and help to make a continual income. It doesn’t matter the truth, you ought to learn how to trade the Currency trading, considering that this turned out to be to be the most effective way to gain a little extra money, and get a good profit while doing so.


The Forex markets is known for a three trillion US dollars trade every single day, therefore being the biggest tradable market on the globe. Simply because, or even better mentioned thanks, to the belief that most trades are usually speculative, any kind of real movement of foreign exchange is small – this really is these people key to getting a huge profit having a small investment.
Forex market doesn’t trade on the central exchange, the interbank marketplace staying the actual place exactly where deals happen, therefore two entities may trade with out going trough an exchange. In Simple terms, trading in currencies indicates buying one foreign currency while at the same time selling another.
If you would like to learn to trade the forex and try to get a profit, you have to learn how to get the best trades possible, the quickest possible way. For this reason it is recommended to gather all of the knowledge you are able to. There are many available resources on the internet that you need to use and there are also tools which will help you trade 24 hours a day, five days a week – like Forex robots.
More informative info regarding the Forex Market in order to learn how to trade the Forex is available here.

SEBI has recently allowed allowed registered stockbrokers to transact mutual fund units on behalf of their clients through the stock exchange mechanism. When the systems are in place there are a few points the investor has to consider while investing in mutual funds through Stock Exchanges (NSE and BSE)

- Existing mutual fund investors who intend to buy more units will also benefit as this system will allow them to keep track of all investments under a single statement.

- The SEBI circular on Friday also said that investors can hold units of mutual fund schemes in dematerialised form, and that the demat statement given by the depository participants would be deemed adequate compliance with SEBI norms. Buying and selling will become more efficient and transparent , particularly if investors choose to transact through a demat account.

- Though cost seems to be a factor for those who do not have a demat account, the impact will be minimal for those who already are demat account holders.

- End-users can use the convenience of their neighbouring broker’s office for their mutual fund transactions. However, once the broker starts acting as a distributor, there is an issue about what commission he might ask for and whether the client would be ready to pay that or not.

- In terms of convenience, the advantages are similar to investing online through the AMC’s website — reducing the clutter of paperwork and speedy execution.

- Investing in SIPs (systematic investment plans) – A reading of the SEBI circular on entry loads suggests that the entry load will continue to apply on instalments of SIPs registered before August 2009. As long as this loophole remains unplugged, existing SIPs will be at a disadvantage to the ones registered after August 1. The only way out is to stop the existing SIPs and start afresh in the same scheme.For those with SIPs, the only way to benefit from the entry load waiver is to stop them and start new ones in the same scheme.

- Switching from one scheme to another within the same fund house – As per the new guidelines, no entry load will be charged for purchases, additional purchases and switch-in accepted by any fund house with effect from August 1, 2009.Similarly, no entry load will be charged with respect to applications for registration under systematic transfer plans.

Source : ET and Hindu Businessline

Penny stocks are designated as penny in terms of their market capitalization.

These might be low priced due to some reason such as these are of the companies looking for a way to raise capital. These might have good management, better future prospects but with insufficient funds due to which their share is low-priced. It is a matter of fact that a smaller company tends to grow faster and thus their stock tend to move at faster pace. With this Optimism in mind, don’t forget Penny stocks could be worth millions as well. So before underestimating them; keep it in your mind that it might be great opportunity turning your small capital into big amount

Penny stocks are considered more risky investments due to greater volatility factor. Secondly, these are generally traded in lots of 1000. So even if the price goes down by 1 buck, you will loose 1000 bucks in fraction of seconds. Thirdly, penny stocks might not be so frequently traded on stock exchanges. Suppose some rumor broke out and you just wish to exit the stock. But since the stock’s trading volume is low, you do not find buyers to buy your stock. Keeping aside all these factors, a well planned strategy might take you to diamonds hidden inside a coal mine. But before you really enter into the arena ask yourself few questions:

What is there in that penny stock attracting you to buy it?

What is the price at which you must exit the stock?

Once decided upon the stock to buy, exercise your mind to know is it really worth buying? Below are the three criterion helping you take a final decision.

Company fundamentals: Good cash flow is the most important consideration in choosing a penny stock. Spare sometime in knowing company fundamentals in addition to its goodwill and future projects. If a company has a good chance of success, please go for it.

PE and PEG ratio examine the PE ratio of the stock you and compare it with its peers doing well in the market. A safer way however is to find out the Price/Earnings/Growth (PEG) ratio (PE ratio divided by the projected growth in the next 3-5 years). Remember you will choose a stock with higher PE but lower PEG.

Trading volume: Assume yourself in a situation when you want to sell your stock but no one is ready to buy it. Stocks with low liquidity are difficult to buy or sell for the prices you want. So think twice before you buy such stock.

That was all about the reasons for you to buy a penny stock and considerations while deciding which one to buy? But the story does not end here due to associated risks. The best strategy to minimize the risk is to plan your exit having decided your expected profits. Do not just pump and dump the stock for reason that it costs you less than other stocks and will reach very high levels one day.

All The Best

- Renuka Kinger

Stock quotes can be obtained in newspapers and online but the most convenient place is online as it is very close to real time information. Website like Yahoo!Finance and rediff help you get real-time quotes at a mouse-button click. Different sources provide different sets of information. Some might provide with detailed information like corporate actions, mutual fund activity in the shares in addition to some basic price information. Below is the list of common figures in the stock quote details:

52-week High/low : These are the highest and lowest price recorded in the last 52 weeks. The highest/lowest price figures for past 52 weeks can help make a judgement whether or not you should invest in stock at current price .

Days Range: It is the price range within which a stock has traded on a day. It thus consists of high/low price the stock has touched in a day.

PE: It is the Price to Earnings Ratio of the stock (per-share earnings by closing price).

Open and Close: Close is the last price quoted on a stock during a day. Open price is the opening price at which stock starts trading for a day. Opening price may not be same as the closing price of the stock on previous day.

Bid and ask prices: Bid price is the price a buyer is willing to pay for a stock while ask/offer is price at which seller is willing to accept the stock.

Trade volume: It is the quantity of shares traded on the stock exchange on a day. It helps you determine the liquidity of stock as you might land up in trouble if you want to sell your share and there is no one to buy it

Percentage change: It refers to the percentage change between current stock price w.r.t to its previous close.

Market Capitalisation: It gives you an insight into the company’s equity capital available for trading and is the price of each share multiplied by number of equity shares outstanding.

Dividend: Some quotes also give the last dividend paid to the shareholders and can be useful in determining how much and what type of dividend can be expected from the company. This also details their record date, ex date so that you can decide upon what time will be right to invest in the stock to avail the dividend.

Renuka Kinger

Day trading conditions the most intense approach to stock market trading. To be on top of the fluctuations in stock prices, day traders spend hours together in monitoring the market. Day traders could make dozens of trades any day, sometimes in a matter of minutes hoping to grab the wave of price change. They avoid the risks of long term buy and hold. Day trading could be exciting, the fast pace attracting risk takers. Yet this strategy for stock market trading is only effective for day traders, who apply analysis rather then emotion to trading decision. Savvy day traders could turn profits quick. Emotional traders usually lose fast and leave disenchanted.

Swing trading uses a slightly longer time horizon than day trading, watching a stock for weeks or months before trading. This type of stock market trading relies on careful monitoring of fundamental and technical analysis. Swing traders often specialize in a certain business or industry so that they become experts in the movement within those stocks. They also have more time to study the company financial reports and industry forecasts. Since swing trading does not require hours of daily monitoring, it is a good strategy for the trader who wants to make money from stock market trading without turning it into a full time job. Even the study of reports could be done during the daily commute or lunch hour so that the swing trader stays well informed.

Position trading works well for investors who want to be involved in the stock market trading, but run short of time. Stocks are being held for months awaiting any changes in the trend. Position traders keep up with the fundamental and technical analysis as well as news events but apply a long term strategy to their stock market trading.

To understand this in a better way, let’s have a look at the below comparison chart between futures and option:

From the above description, it can be inferred that be it future or an option; these are the ways of hedging the risk of investments. It provides a protection against unexpected rise or fall in the price by entering into an agreement to be executed in future date. The concept is very old when agreement used to be made by negotiating the price for harvest of season having been unaware whether harvest will be meager or plentiful. When harvest time came, demand would rise sharply and ultimately giving the holder of agreement a chance to earn more than what he had expected.

Whatever be the case, playing options and futures has always been a risky. So better  be careful before you enter into the arena!!

Renuka Kinger

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Holder: Holder is the buyer of derivative agreement. By buying an agreement, the buyer may agree to buy or sell the underlying asset.

Seller: One who sells the contract to holder.

Expiry date: The date at which agreement will get matured / exercised.

Strike price: The price at which derivative will get exercised and is decided at the time of entering into agreement (between buyer and seller).

Premium: It is the price which buyer pays for buying an option contract. The premium is not to be paid for futures contract.

The reason of its appeal to investors which makes it different than other financial instruments is that it is not an asset in itself but an agreement to convey the transfer of actual assets later in future. The catch here is why to enter an agreement to buy/sell assets in future?? Why not buy the real asset (underlying asset referred here) directly from spot market at current levels??  Why making an agreement to be executed in future date? The answer is; derivates are usually seen as instruments for bringing in protection against unexpected rise or fall in the price of underlying asset. Secondly, derivatives are used to yield better returns with lower capital investment as compared to the amount that will be invested to buy the shares directly form the spot market.

Types of derivative instruments:

Forward Contract: It is an agreement to buy or sell the derivative at a known date in the future at a price decided as per negotiation between the contracting parties. These are not traded in exchanges.

Futures Contract: It is an agreement to buy or sell a financial instrument at a known date in the future at a price as per negotiation between contracting parties. These are traded on stock exchange.

Option Contract: It is a contract that gives holder the right, but not the obligation to exercise it. Call options give holder the right to buy while put option give the holder the right to sell at the strike price at stipulated date as per agreement.

Warrants: These are long term options having 3-7 years of expiration. Warrants are issued by companies for raising finance with no initial servicing costs like divided or interest. It is a type of security issued by corporation usually together with a bond or preferred stock that gives holder the right to buy a certain amount of common stock at a stated price. So it acts as a “sweetener offered along with the fixed-income securities”.

Swap Contract: Swaps are agreements between counterparties to exchange one set of financial obligations for another as per the terms of agreement.

Swaptions: Swaptions are options on swaps. They give holder the right to enter into having calls options and put options.

- Renuka Kinger