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Tuesday, 29 November 2011

Indian Market at present condition

The unfolding Euro Zone crisis, slow down in US and persistent inflation,repeated monetary tightening could be the reasons for India's growth slowing , but economic fundamentals are strong. India's overall economic growth slowed to 7.7% in April-June quarter against 8.8% in the same quarter last year. The India Inc. has criticized the rate hike saying it is unlikely to tame rising inflation and could instead lead to further slowdown investments and industrial growth. The RBI , which has raised key short rates as many as 13 times in the past two years to tame inflation.
What is Inflation?
Inflation is a rise in the general levels of prices of goods and services in an economy over a period of time.
Causes of Inflation
It is very difficult to say that the cause of inflation but some causes are accepted by many Economists.
1.Demand pull inflation: If demand is growing faster than supply, prices will increase. This usually occur in growing economies.
2.Cost push inflation: When companies costs go up, they need to increase prices to maintain their profit margins.
3.Historically ,infusions of Gold and Silver into an economy also lead to inflation.
4.Increase in prices of imported raw material will cause inflation.
Inflation effects:
Negative Affects:
 1.Decrease in the real value of money and other monetary items over time.
 2.Uncertainty over future inflation may discourage investment and savings
 3. High inflation may lead to shortage of goods 
 4. Domestic products become less competitive.
 5. Decline in purchasing power of money and standard of living.
 6. Inflation increases transactions and information costs, which directly inhibits economic development.
Positive Affects:
1. Central banks can adjust nominal interest rates and encouraging investments.
2. Debtors gain when the interest rate raised to tame inflation
How the Inflation will affect the investments?
Inflation causes many distortions in the economy. It hurts people who are retired and living on a fixed income. In the long run a company's revenue and earnings should increase at the same pace as inflation, but inflation can discourage investors by reducing their confidence in investments. The main problem with stocks and inflation is that a company's returns can be overstated. Int he long term stocks are good protection against inflation. The impact of inflation on your portfolio depends on the type of securities you hold.
Where to invest in the times of inflation?
1. Commodities: Investing in commodities like gold and silver therefore helps in diversifying the risk element in your portfolio.There is no surety that they do well. Investing in a commodities takes care of the risk arising due to erosion in value of the currency.
2. Stocks: Stocks which are beaten and have returned in excess of 15% p.a are best option for investment.
Two sectors are relatively immune to inflation are Pharmaceuticals and software.
3. Inflation Index bonds: Thee are securities that offer investors the guarantee that returns will not be eaten up by inflation. Treasury inflation protected securities(TIPS)
4. Short term deposits and funds: These instruments will give you the required liquidity you need while ensuring that you do not lose out in case interest rates were to rise.
5. Property: Property is again a preferred avenue of investments An alternative can be real estate mutual funds. Which are very popular in international markets .Apparently, SEBI is considering allowing such funds in India.
How the FDI in retail to cut inflation and increase productivity?
Foreign Direct Investments in retail will safe guards small shop keepers and it would bring down costs on transportation,cold storage etc. In India farmers are struggling with the destruction's of natural calamities and the lack of technology is also one of the main reason to cause food inflation. Indian govt is trying to educate farmers but could not do it properly. If FDI's will come in retails there is a chance to bring new technology and to increase Agriculture production and bridge demand and supply gap.
                         There is an expectation that the Inflation rate will fall sharply over the next few months and the country's economy should hold up despite the global economic slowdown.

Thursday, 24 November 2011

Good Dividend Stocks

Any company or corporation earns a profit, that money can be put in two ways
1. It can be re-invested in the business called retained earnings
2. It can be distributed to share holders called dividends.
Most secure and stable companies offer dividends to their stock holders. High Growth company's rarely offer dividends. These companies reinvest all of their profits to sustain their growth.
Investing in dividend stocks and blue chip stocks are always profitable for long term investors.
Dividend: Dividends are taxable payment made by a corporation from its portion of corporate profits to its share holders.
For a joint stock company a dividend is allocated as a fixed amount per share. Public companies usually pay dividends on a fixed schedule. Some times companies pays special dividends.These are different from fixed dividends.
These dividends are paid in the form of cash,shares in the company or property
Cash dividends are a form of investment income and are usually taxable. 
Stock dividends are paid out in the form of additional stock shares of the issuing corporation. At that time the company increases the number of shares while lowering the price of each share without changing the market capitalization.
Property dividends are paid out in the form of assets. These type of dividends are relatively rare.
How to calculate Dividend?

Dividened yield(%)= (Annual dividend/current share price)*100.

Stocks which are having good history of giving dividends.

  • TCS                                                                        India Bulls
  • ITC                                                                         HCL Info
  • IOC                                                                        GE shipping
  • NTPC                                                                     Tata Elexi
  • Hero Honda                                                            Chennai petroleum
  • Reliance Industries                                                  Hinduja global
  • State Bank of India                                                  LKP Finance
  • Infosys Technology                                                  Nestle       
  • HUL                                                                        Glaxo Smith Pharma
  • Sail                                                                       Bajaj hld&invs
  • ICICI Bank                                                             HDFC Bank 
  • BHEL                                                                   Bosch
  • HDFC                                                                    Asian Paints
  • Gail                                                                       Gujarat Gas
  • Wipro                                                                    Mahindra& Mahindra
  • Tata motors                                                           Reliance Industries
  • Oil india                                                                 Thermax
  • L&T                                                                      Foseco India
  • Petronet lng                                                           Mundra port
  • Delta corp
Related Links:
Very Useful Article for Wall Street
Three hottest sectors for 2012

Stock Market Crash

A rapid and often unanticipated drop in stock prices, resulting in a significant loss of paper wealth. Crashes are often occur under the following conditions
1. A prolonged period of rising stock prices.
2. Excessive economic optimism
3.A market where P/E ratio exceed long term averages.
4. Extensive use of margin debt
5. Leverage by market participants

Historical Crashes:

Wall Street Crash of 1929:

The lead up to October 1929 saw equity prices rise to all time high multiples of more than 30 times earnings. It was a technological golden age as innovations such as radio,Auto mobile aviation, telephone and power grid were deployed and adopted.
on august 24 1921 the Dow Jones Industrial average stood at a value of 63.9. By September 3, 1929 it had risen to 381.2. By the summer of 1929 the economy was shrinking and the stock market went through a series of unsettling price declines.On October 28 an 29 the Industrial Average fell 38 points to 260, The Dow Jones Industrial Average would lose 89% of its value before finally bottoming out in July 1932.

The crash of 1987:

The crash of 1987 did not lead to a bear market. The rapid and severe down turn in stock prices that occurred in late October of 1987. After 5 days of intensifying stock market declines selling pressure hit a peak on October 19 known as Black Monday. The Dow Jones Industrial Average fell a record 22% on that day alone, with many stocks halted during the day as order imbalances prevented true price. Investors and regulators learned a lot from the 1987 crash.,specifically with regards to the dangers of Automatic or program trading. Humans are needed more than ever to assess the situation and possible over ride imprudent market thresholds.

The crash of 2008-2009: 

On the September 16,2008 failures of massive financial institutions and US banks, most notably the Lehman Brothers Bank resulted in a Global Financial Crisis. This affected banks throughout Europe. Iceland was worse hit and the value of its Krona reduced rapidly threatening to send the whole country into bankruptcy.Iceland was able to secure an emergency loan from the International Monetary Fund in November. In United States , 15 banks failed in 2008.On October 24 many of the world's stock exchanges experienced the worst declines in their history with drops of around 10% .By march 6th 2009 the Dow Jones Industrial Average dropped 54% from 14164 to 6469.
every body was looking to get as far away as they would from stocks but one person was busy putting all his money into stacks. And this person was none other than the legendary investor Warren Buffett.
Buffett believed that when the entire world sees things with short term view , even good , fundamentally strong companies witness a drop in price along with all the other stocks. He believed that such companies would set new earnings records 5,10 and 20 year down the line and hence you are getting an opportunity to grab them for cheap now.

Sunday, 13 November 2011

What to do if you want to invest in Mutual Funds.

Mutual funds may be formed under company law,by legal trust or by statute. There are fund managers who manage the investment decisions, Fund Administrator who manages the trading,reconciliations, valuation and unit pricing, a Board of Directors or Trustees who safe guards the assets and ensures compliance with laws ,regulations and rules and the share holders who own the assets and associated income.

Internationally recognized mutual funds are 
1. Exchange traded funds(ETFs)
2. Real Estate Investment trusts(REITs)
3. Sovereign investment funds.
The terminology varies with country.

There are many ways to find mutual fund securities in India.

1. Get in touch with Asset Management Company(AMC) through online. Some mutual fund sites allow you to invest online for that you need to have an account with the banks they have partnered with and get in touch with fund houses. You will find all these sites on web.

2. Visit  the Association of Mutual funds in India: Here you find a list of mutual fund agents across the country.

3. Investigate your friends relative and colleagues 

4. Visit your bank: A number of banks are mutual fund agents.

5. Check the online finance portals.

                                                            All the best

Saturday, 12 November 2011

Types of Mutual Funds

Most funds have a particular strategy . It is important to find which strategy fits to your investment criteria and style.
Mutual funds are divided in the base of structure and Investment objective.
In the base of structure mutual funds are divided in to three types.
1.Open-ended Funds
2.Close-ended Funds
3. Interval Funds
Open-ended funds do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value(NAV) related prices. The key feature of open end funds is liquidity. 

Close-ended funds have fixed number of shares. The value of the shares fluctuates with the market, but fund manager has less influence because the price of the underlining owned securities has greater influence.

Interval funds are that funds which combines the features of open ended and close ended funds.The units may be traded on the Stock Exchanges or may be open for sale or redemption during pre-determined intervals at Net Asset Value(NAV) related prices.

In the base of Investment Objective Mutual Funds divided in to 16 types.
1.Based on company size large,mid and small capitals: Stocks from firms with various asset levels such as over $2billion for large. In between $2 and $1billion for mid and below $1billion for small.
2. Index Funds: These funds are Position Philosophy based funds. The securities are maintained by the fund manager to mimic the index fund which it is following.
3.Enhanced Index: This is an Index fund which has been modified by either adding value or reducing volatility through selective stock picking
4. Value Stock Funds: Stocks from firm with relative low price to Earning (P/E ratio),usually pay good dividends. It is good for the investor who is looking for the income rather than capital gains. 
5. Income stock funds: Investor who is looking for income can prefer these funds. Income usually come from dividends or interest. These stocks are from firms which pay relatively high dividends. This fund is much like the Value Stock fund but accepts a little more risk and is not limited to stocks.
6. Growth stock funds: Stocks from firm with higher low price to earning(P/E ratio). usually pay small dividends. This is good for the investor who is looking for capital gains.
7.Tax efficient funds: The main key to this fund is to minimize the tax bills such as keeping turnover levels low. These funds still shoot for solid returns.
8. Balanced Funds: These funds are good for the investor who is wishing to balance his risk between various sectors such as asset size ,income or growth. 
9.International funds: Stocks from International firms.
10.Stock Market Sector funds: The securities in this fund are chosen from a particular marked sector.
11.Defensive Stocks: The securities in this funds are chosen from a stock which is usually not impacted by economic down terms.
12.Convertible Funds: Bonds of preferred stocks which may be converted into common stock.
13. Junk bond funds: Bonds which pay higher than market interest but carry higher risk for failure and are rated below AAA.
14. Mutual Funds of Mutual Funds: This funds that specializes in buying shares in other Mutual Funds rather than individual securities.
15.Exchange Traded Funds(ETFs): Baskets of securities that track highly recognized Indexes similar to mutual funds. Except that they trade the same way that a stock trades on a stock exchange.
16.Gilt Funds: These funds are to invest their corpus in securities issued by government
Risk return matrix: The following graph clearly showing the returns and the risk.Its up to you to decide which funds suits for your financial goals and how much risk you can take.

Friday, 11 November 2011

Investment in Mutual funds

          I posted so far about  Direct Investment in share market. Another type of Investment is Indirect Investment. Indirect investment means investing in Mutual funds and portfolio management services.Let me explain about mutual fund. 
          Mutual fund is a collective investment scheme which is professionally managed. Number of professionals dedicated their time to observe good stocks. These professionals buy stocks,bonds,short term money market instruments with the money which is invested by many investors.

There are many reasons to buy mutual funds

1.Diversification: You can buy a mutual fund and obtain instant access to a hundreds of individual stocks or bonds
2. Professionally managed: Professionals like mutual fund managers and analysts dedicating their lives for researching and analyzing current and potential holdings for their mutual funds.3.Mutual funds have low minimums: Many mutual fund companies allow investors to get started in a mutual fund with as little as $1,000.
4. Systematic investing and withdrawals: It is simple to invest regularly in a mutual fund. Many Mutual Fund companies allow investors to invest as little as $50 per month directly into a mutual funds. Money can be regularly with drawn from a mutual fund and be deposited into a bank account. There are generally no fees for this service.
5 Automatic reinvestment: An investors can easily and automatically have capital gains and dividends reinvested into their mutual fund with out a sales load or extra fees.
6. Transparency: Mutual fund holdings are publicly available,which ensures that investors are getting what they pay for.
7. Mutual funds are liquid: If you want to sell your mutual fund, the sum derived from the sale are available the day after you sell the mutual fund.
8. Mutual funds have audited track records: A mutual fund company must maintain performance track records for each mutual fund and have them audited for accuracy, which ensures that investors can trust the mutual funds.
9. Safety of investing in mutual funds: If a mutual fund company goes out of business, mutual fund share holders receive an amount of cash that equals their ownership in the mutual fund. Alternatively the mutual funds Board of Directors might elect a new investment adviser to manage the mutual funds.

Related links: 

Thursday, 10 November 2011

Analysis of a stock

Before Investing , you need to know the different types of stocks and have to analyze the stocks.

What are different types of stocks in Stock market?

1.Common stocks:  These stocks are stocks that offer you a bit of ownership of a company. Entitles you to some dividends and allows you one vote for each share you own in electing directors or making key business decisions. These stocks are different from debentures or bonds. which are money given to a company as a loan in return for the promise of specific interest.
2. Preferred stocks: These stocks offers you preferential treatment when it comes to paying of dividends.If you have preferred cumulative stock, your position is secure.Those holding preferred types of stocks usually have no voting ability.
3. Growth stocks: The stocks which increase their sales and earnings from one year to the next year by at least 15% will come under growth stocks. The company with growth stocks is generally a stable company.
4.Value stocks:The stocks that were beaten down due to temporary problems will come under value stocks.Investors believe that the stock market overreacts to news about a company.
5.Dividend Stocks: The stocks which gives dividends based on the number of shares owned and typically on a quarterly basis and financially solid will come under dividend stocks.
6. Seasonal Stocks:Stocks which grows according to the seasons are seasonal stocks.
7.Blue chip stocks: Companies who are considered leaders in their industries and show promises of long term success. They have good reputation for dividend payout and have recognizable brand.
8. Technology stocks: Technology stocks are stocks bought from companies that are involved in higher technology sector.
9. Speculative Stocks: These stocks are riskier stocks and often offer a greater chance for higher profit but also pose a greater risk. These stocks are generally good only for very confident investors.
10.Low-risk,Medium-risk and High-risk stocks: Stocks from banks and utilities fall into the Low-risk stocks. Those stocks which have good history of dividend payout considered medium-risk. Penny and Speculative stocks fall into the High-risk stocks.

How to analyze the stocks?

There are many techniques to analyze the stocks.
1.Fundamental Analysis:It looks at the details of a specific company like 
  • Who are the directors
  • How the company operates in the market
  • What are the chairmen statements
  • History of the company
  • Current status in the market
Reviewing its income and Balance sheet
2. Technical Analysis: It is looking the company's stock value only over a period of time on a chart. By comparing the stock price against its moving average and other calculated chart lines. A company's financial statements are less important in this type of analysis.
3. Index method: In this type of analysis, investors value their portfolio by trying to create diverse investment strategies.The investment portfolio is weighted by market capitalization.
4.Analyzing using Inside information: Some investors try to analyze the stock market by using information gained from insider sources in a company. This is illegal in most places.
5. Comparative Analysis of stocks : In this method of analysis investors compare different stocks, trying to figure out which stocks are yielding  more profit and which stocks are most likely to offer profit in the future. This type of analysis make it easier when deciding which stocks to buy and which to sell.
6. Earnings revisions of stocks and the services of an analyst: In this method of analysis investors look at analysts projections and earnings expectations.
7.Stock analysis software: Investors use software to evaluate investments regularly and make them alert.
8. Online stock analysis:  Investors also use online stock analysis to evaluate and make them alert

Wednesday, 9 November 2011

Economic Collapse: Robert Kiyosaki Investment strategy

Robert Kiyosaki is a New York Times best -selling author and self made Millionaire.
 He clearly defines the difference between cash flow and capital gains and why the average person will always try to invest for capital gains.which he compares to gambling. He stats the idea of increasing financial education as the right way to protect oneself in a down economy verses investing in a well diversified portfolio of stocks, bonds and mutual funds.
His first strategy was to short the market during the crash, which will also pull down the prices of precious metals. Then after crash he will move back into gold mining stocks and enjoy the rebound.
He experienced the trapping of his money during crash and he quoted very useful strategy.
The longer the market crash is delayed the higher that natural resources are going to increase after the market crash.
The price of oil could easily double its current price shortly after a market crash and a sell off of the dollar.

Philip Fisher's 15 investment secrets and 5 don't rules in a common stocks.

15 Investment Secrets in common stocks
1. Does the company have products or services with sufficient market potential to make a possible a sizeeable increase in sales for at least several years.
2. Does the management have a determination to continue to develop products or processes that will further increase total sales potential when the growth potential of current attractive product lines have largely been exploited.
3.How effective are the company's research and development efforts in relation to its size?
4. Does the company have an above average sales organization?
5. Does the company have worth while profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personal relations?
8. Does the company have depth to its management?
9.Does the company have outstanding executive relations?
10.How good are the company's cost analysis and accounting control's ?
11.Are there other aspects of the business  some what peculiar to the industry involved that will give the investor important clues as to how the company will be in relation to its competition?
12. Does the company have a short range or long range outlook in regard to profits?
13. In the foreseeable future, will the growth of the company require sufficient financing so that the large number of shares then outstanding will largely cancel existing ,share holders benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well and claim up when trouble or disappointments occur
15. Does the company have a management of  unquestioned integrity?

Fisher also had five "don't" rules for investors. 

1. Don't buy into promotional companyies.
2. Don't ignore a good stock just because it is traded over the encounter.
3. Don't buy a stock just because you like the tone of its annual report.
4. Don't assume that the high price at which a stock may be setting in relation to its earning is necessarily an indication that further growth in those earnings has largely been already discounted in the price.
5. Don't quibble over eights and quarters

4 Things to look for in an Investment

1. What is the price of the entire company?
 When doing research it is important that you look at more than just the current share price - you need to look at the price of the entire company.
The cost of acquiring the entire corporation is called market capitalization.
Market Capital= (Price of all outstanding shares of common stock) *(quoted price per share at any given moment).
Market Capitalization test can help keep from overpaying for a stock.
another useful tool to help gauge the relative cost of a stock is the price to earn ratio(P/E ratio). It provides a valuable stranded of comparison for alternative investment opportunities. 

 2. Is the company buying back shares?
One of the most important keys to investing is that overall corporate growth is not as important as per share growth. A company could have the same profit, sales and revenue for five consecutive years but create the total number of outstanding shares.
A share holder should desire a management that has an active policy of reducing the number of outstanding shares.

3.What are the reasons for investing in the company?
Before you purchase stock in a company ,you need to ask yourself why you are interested in investing int hat particular opportunity. It is very dangerous to fall in love with corporation. Make sure the fundamentals of the company(current price, profits,good management etc) are the only reason you are investing.

4.The guaranteed way to success has historically been to select a great company, pay as little as possible for the initial stake, begin a dollar cost averaging program, reinvest the dividends and leave the position alone for several decades.

Tuesday, 8 November 2011

Be careful when a tip is passed

Whenever a tip is passed onto you take care about the following points.
  • Make sure you check the genuineness of the information. Just because the tip is coming from a successful investor or your broker it is not guaranteed.
  • Talk to your peers, see what they feel
  • Don't get greedy. Invest in a phased manner and most importantly don't trade more than you could afford.
  • News papers and TV channels are mostly late in reporting a news and by that time the news in already discounted.
  • If you understand technical see what they say
  • Day trading is very tricky always plan to invest for mid to long term.

Best time for investment in share market

While its tempting to wait for the best time to invest, especially in a raising market. Some times the risk of waiting may be much greater than the potential rewards of participating. There is no use in tracking the stock market daily or weekly and then making a decision on where to invest. Timing the stock market is a foolish goal. Trust in the power of accumulated interest. Compounding is growth via reinvestment of returns earned on your savings. You earn not only on the original investment but also on the reinvestment of dividend/interest accumulated over the years. The power of compounding is one of the most compelling reasons investing as soon as possible.

                         It is the length of time that you stay invested in the stock market that matters. The longer you are in the better for you.
                         The earlier you start investing and continue to do so consistently the more money you will make. The longer you leave your money invested and the higher the interest rates. The faster your money will grow. That's why stocks are the best investment tools.

Related links:

1.7 stocks rising on huge volume in The street

2 Dividend Calender for The street

Sunday, 6 November 2011

Smart Investment in Stock Market


Stocks are said to be one of the best methods of investments. Many investors who have shown their keen interest in stocks and shares are raised very sharply. 

Why should you invest in stock market 

  • It gives high rates of returns compared to the other forms of investment                     

  • There is an opportunity to diversify your portfolio to reduce risks involved 

  • You can save your taxes because when you hold the stocks more than one year, the profits are taxed only 15%. 

 Investing in the stock market can be a difficult process, but as long as you know the basics of share market. 

7 Important tips for young investors:  

  • To retire rich, start saving now:If you begin investing at age 25 , you need to keep goals and need to plan according to your goal to achieve it by age 65. 

  • Get the Debt saddle off your back:Try to be free from all credit card bills and high interest loans to eliminate the high interest charges that you incur.

  • Don't confuse investing with saving: Saving is different from investing. many people saving for house ,a car, higher education etc. By all means continue saving but don't invest your savings in stocks and stock mutual funds.Investing will work wonders for you but the time period of less than five years may not give enough time to recover from substantial market drop.

  • Take advantage of your employee retirement plan:Retirement plans offer a great opportunity to accumulate enormous sums of money. The money you contribute from your pay check is tax deductible and will grow without being taxed. A retirement plan is still a great wealth building tool.

  • Start investing with less amount of money:Mutual funds allow you to invest with less amount of money. Many funds will waive their regular minimum if you commit to an automatic investment plan where money is taken out of your bank account and put.

  • Don't try to micro-manage your investment :Journalism tends to have a negative bias and very short term horizon. Don't make sense of the markets short term trends. Stay focused on your investment goals and not every news paper head lines 

  • Mutual funds are the best for the core of your  portfolio:Mutual Funds are terrific for the young investors because they allow investors to own many company stocks.

  • There are two types of investment

    1. Direct investment in stock market

    2. Indirect investment like mutual funds and portfolio investment services

     After having research and thoroughly investigation you will come the level where you can create the right type of Investment plan and investment choices. Then all your worries of loosing money in the stock market will disappear. There is no difference whether your portfolio is rising or falling.

    Income producing investment plan based on these fundamental investment strategies.

    • You need to time the market well or you have to invest for long term to get good returns on your investments.

    • You need to be carefully select stock for investment. You need to know the valuations at which to buy a stock or sell a stock.

    • You should be aware of news and have research to pick a winner.

    • Make smart investments in the stock market by using stock market crash to your advantage.

    • Investing in only those companies that have a historical record of raising their dividend every year. 

    •  Having the dividends from those companies rolled back into more shares each quarter.

    Risk factors, long term goals and timely investment features are to be analyzed. Limit your adverse stock losses as much as possible.

Common mistakes in trading

Traders will commit very common mistakes while trading and will face huge loses. Some of them are

1.Trading for excitement &thrill and trading with a high ego is very common mistake.try to avoid it.

2.Trading with money that can't afford. Some people will take loans and trade for the profit but some times instead profits they face huge loses. Don't be too emotional about money.

3.No trading plans and lack of record keeping. Without certain plans if you trade it is a gambling. Some times gamblers will be the winners but that is not always work.

4.Not cutting losses and not letting profits run

5. Letting small losses turn into large losses.

6.Not sticking to plans and changing strategies.

7.Bottom fishing/catching falling knives.

8.Fighting the trend- shorting bulls and buying bears.

Useful rules for trading in the share market.

Before starting the trade in stock market you should be aware of some rules to gain good returns. Some of those are listed here.
1. Divide your capital into few equal parts, never do risk trading more than one part of it.

2. Trade only in active and high volume stocks.

3.Always use stop-losses 

4. Never over trade and stick to your risk management rules.

5.Never let profit turn into a loss. Use trailing stops to protect and lock your profits.

6. Never get into market because you are anxious from waiting and never get out of the market just because you have lost your patience.

7. Do not guess where the top and bottom of the market is but let the market signal its top and bottom

8.Never average a loosing trade , also avoid taking small profits and big losses.

9. Only trade with genuine capital and be aware of the risk of losing 

10. Always trade with in capabilities.

11.Never let greed (or) fear take control over your winning positions.

12.Avoid Tips and Rumors. These are spread by people with vested interests.

Stock Trading Risk Management

                    Traders and investors need to understand the 'Stock Trading Risk Management'.The concept of Stock Trading Risk Management consists of learning about many things to help you to manage risks as well as money management. These money management rules will help you to identify how many shares you can buy or sell in particular trade.Some of those Risk Management Rules are sorted here
1. How big is my risk for one trade: Beginers must start with a small risk . Use 0.4% (or) 0.5% risk of the total account value and as your confidence grows you can increase it.

2. How many opened trades i can have at a time: Every trader must limit the maximum number of opened trades. The absolute maximum for a single person is eight open trades at once. During first year of your trading set this number of trades to the lower value like 3 or 4 max.
3. What is my risk reward ratio: Never, ever try to have the risk reward rati less than 2.5 to 1. This rule is crucial in your trading statistics. if you are new trader set this ratio 3:1
4. Trade only liquid stocks: Stocks above an average daily trading volumes over 3,00,000 shares traded per day (for swing trading) or above 10,00,000 shares per day (for online day trading)
5. Trade stocks with a price above $5USD: Stocks with a low price are not traded by big institutional trades and therefore they are easily manipulated. Technical Analysis can fail on such stocks. Also most big investment funds don't invest in such low priced stocks.
6. Spread sheet:All money management rules can be easily defined in spread sheet like excel or open office calc and then all values are calculated automatically as you are entering your set up Entry, stop-loss and targets.

Types of trading

Trade is the transfer of ownership of goods and services from one person to another. Trade is also called commerce or financial transaction or barter. A network that allows trade is called a market.
There are several types of trading styles.
1. Day trading: Day traders buy and sell stocks throughout the day. The fluctuations in the stocks allow them to earn quick profits. The object of day trading is to quickly get in and out of any particular stock for a profit on an intra-day basis. Day trading is also divided into two types scalpers and momentum traders. Scalpers style of day trading involves the rapid and repeated buying and selling of a large volume of stocks with in seconds or minutes. Momentum trader style of day trading involves identifying and trading stocks that are in a moving pattern during the day.
2. Swing Trading: The main difference between day trading and swing trading is that swing traders normally have a slightly longer time horizon than day traders for holding position is a stock.swing traders are willing to hold stocks for more than one day. Swing traders has the capability of providing higher returns than day trading but there are some significant risks in carrying positions overnight. For Example news, events and earnings, warnings announced after the closing bell can result in large, unexpected and possibly adverse changes to a stocks price.
3. Position trading: Position trading is similar to swing trading, but with a longer time horizon Position traders hold stocks for a time period from one day to several weeks or months. These traders seek to identify stocks where the technical trends suggest a possible large movement in price is likely to occur.
4. On line trading: Online trading is not a trading style. Online traders , which can include long term investors as well as day, swing and position traders, use either an internet connection or a direct access online trading platform to access and execute trades with web based brokers.

Saturday, 5 November 2011

Types of Share Market

There are two types of markets in share market in any country.
1.Primary markets
2.Secondary markets
Primary market: Primary market is the place where the shares are issues for the first time. So when a company is getting listed for the first time at the stock exchange and issuing shares- this process is under taken at the primary market. That means the process of the Initial Public Offering or IPO and the debentures are controlled at the primary stock market.
Secondary market: The secondary market is the stock market where existing stocks are brought and sold by the retail investors through the brokers. Generally when we speak about investing and trading at the stock market we mean trading at the secondary stock market.

           Indian stock markets can be divided into further categories depending on various aspects like the mode of operation and diversification in services.
Bombay Stock Exchange(BSE) : This exchange is a conventional stock exchange with trading floor and operating mostly offline trades.
National Stock Exchange(NSE) : This exchange is completely online stock exchange.

          Both the BSE and NSE have these types of stock markets.
Equity Market or the cash segment: In this type of trading the buyers of the stocks book buying order with a bid price and the order is executed through the broker at a negotiated ask price offered by the sellers at the market. In this type of trading the buyers pays the entire amount of the value of the stocks. Once the buyers pays the entire amount along with the brokerage and taxes of the transaction, the stocks are deposited to the DP account of the buyer.
Derivative Market:  In derivative market trading is done mainly through two instruments.
          1. The future contract
          2. Option contract
In both these types of contracts the stocks are bought and sold in lot. For trading in Derivative Market you have to buy either the future contract or the Option contract. In future contract you are bound to close the deal within a specific time and at a fixed rate. While in case of option contract you can also choose to ignore the contract.