The market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.
Equity markets are the meeting point for buyers and sellers of stocks. The securities traded in the equity market can be either public stocks, which are those listed on the stock exchange, or privately traded stocks. Often, private stocks are traded through dealers, which is the definition of an over-the-counter market.
Equity, the word is so friendly and co-operative but when it joins the word market, this becomes the worst nightmare to most of us. Lack of knowledge creates fear, so to put it simply Equities are the stocks or shares of the company and any Investor investing in the company’s equity shares becomes the Equity Shareholder of the company and gains the ownership rights of that company. These shares cannot be traded by simple buying and selling from the company but it needs to be traded on a common universal platform and that platform is known as Equity Market or Stock Market or Share Market. The shares of all the companies are listed in the stock exchange and it acts as a meeting ground for the buyers and the sellers.
There are various kinds of instruments which can be traded like In case of shares:
In case of Debentures:
There are as many as 23 Stock Exchange in India and NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) being the dominant ones. Every country has numerous Stock Exchanges and New York Stock Exchange and London Stock Exchange Group are the most dominant ones in the world.
Let us teach you some ground rules.
See the Shares and other instruments of various companies are offered in two ways, either directly by the company in their IPO (Initial Public Offering) or in a second-hand sale by other sellers transacting in the market.
So the investor or the potential investor bids for stocks by offering a certain price and on the other hand the seller asks for a certain price, if both agree on a certain price then the transaction happens and our very own potential investor becomes an investor in the company, Cheers to that!
Any Company working on a medium or large scale will obviously need a large amount of money to run
its business operations and in order to raise fund, the company knocks the door of Equity market. Companies sell their shares and stocks in the market to get the capital to grow their business and when a company is offering its stocks and shares in the market that means the company is offering a small part of its ownership and it is incorporated as a Public Company. No private company can offer their stock and shares in this open market, after all there is a reason to why a Private company is known as a Private Company. If a Public Company does well, then the shareholders gets rewarded with a part of profit for their share but the risk rises when the company is not doing well as the value of their shares will go down, hence killing their profit. However, most companies list their stocks on multiple market for easy and smooth allocation of funds and sometimes they also hires the professional underwriters to monitor and purchase their shares.
For people who are not really literate about the where’s and how’s of this market can rely on the share brokers. The online or the electronic stock-exchange often has stock brokers who are also known as match-makers, who deal in both the buying and selling of the shares for a smooth flow in the market, they will guide you about the shares and stocks and which shares bring the most profit. The Brokers sitting at Major stock exchanges are the battle-tested bayonets and will surely make your investment grow rich.
In this fast paced life, there are times when we forget to button our cuffs or at times even recalling what we ate last night then how can we expect to keep a proper track of our investments in the stock exchange.Imagine having a huge back-yard garden and keeping track of all the budding flowers and plants, gets difficult no?
Keeping track of stock exchange is very tricky but crucial because it involves money and if we are talking about maintaining the portfolio it involves substantial money hence requires special attention.
To start off, there are so many things to look for when it comes to managing and keeping a track of your portfolio that only one thing cannot be prioritize. Here are some of the things you will like to look into while managing your portfolio:
News and announcements on stocks and companies- You need to constantly check upon the news and announcements on your stocks and the company you have invested in. You cannot afford to lose on your money because of lack of knowledge about your stocks.
Reports of the company- You should know the standing of your company in the market. Usually after you have purchased your stock, you lose a track of the market and reports of the company so you need to constantly check the monthly and yearly reports of the company.
Interest payments and Call dates- There are various interest payments made by the company throughout the year so you need to keep a track of the dates of interest payments and inform the company in case you do not receive any. Also the call dates for the share capital shall also be tracked so that you do not miss out on any call payment. An arrear in payment might cost you loss of the dividends and other benefits.
Portfolio performance and relative markets- You need to check how your portfolio is working in your market and what are the opportunity costs that you are missing out. Your portfolio might not be working good in your market but it could have worked great in other markets, so a comprehensive check with the relative market needs to be done.
Now that we have already discussed what to look for to keep a track of your portfolio, let’s discuss how can you do it:
Self- In case you are tight on budget or already very skilled with the stock market and its calculation then you can do it all by your own. To keep a record of the purchase price, fall and rise in prices you need some easy and handy software to use. Microsoft Excel sheets and Google Spreadsheets can be used interchangeably for the recording purpose.
Broker- A broker can do it all! A good solid broker can keep track of your portfolio and make appropriate changes in your portfolio at times when required. Brokers are the angels of stock exchange; they help you from opening your trading account to working your way up in the market. With some extra fees a broker will be good to go to be your human tracker.
Online Tools- There are various online software to keep a track of your portfolio like Morningstar, Ellevest,Google finance, ticker to name a few. They come with graph plotting system to give a better understanding of how your stocks have been performing in the market. These online tools come with various features for a better and sound understanding and management of your portfolio.
Because, it is the shortest way to money and success. NO!!! If this is what comes to your mind, then you are totally wrong. Shares or say any other instruments are not any sure-shot short-term plan for success. Investment in shares is not a calk-walk, it requires a well research and proper planning before you invest in shares to earn handsome profits or else you can just invest in any other shares and get returns like any other guy.
Equities or Shares are directly linked to the company’s growth so they are commonly known as growth assets. The Hoax created around shares that they are cash cows or brings fast money is because of the fact that they have consistently out-performed Govt. instruments like bonds, properties and other types of assets. This doesn’t undermine the fact that shares are a risky business but the risk is definitely worth taking.
You might have a practice of going all-in in a go in your poker games but share market doesn’t play with the same rules. In share market, you make a sweet small bundle of a mix of varied stock, which will include high risk and low risk shares to balance the risk and fetch you the most returns.
Shares and real estate have shown the most potential for growth in the recent future and have consistently performed well. An investment in the real-estate and shares of reputed company has never gone in vain and has always fetched higher returns when compared to other instruments. You cannot depend on FD’s and bonds forever.
Nowadays, we are already witnessing high inflation rates due to which our purchasing power is decreasing so we shall be taking immediate steps to retain our savings or put our money in some good use. Your fixed deposits cannot save you from this inflation as mere 5-7% won’t aid you against prices hikes so you need to invest in stocks of high performing companies which will fetch you good 15-20% returns.
Because, money attracts money. Yes you need to let your money work for you. When you invest in a stock, try to keep patience and wait until it fetches you good return and when the value of your stock gets at its peak then you can sell it. The prices of stocks may fall in the short run but if you are willing to take a risk and be patient then you are sure to get high returns.
Most of the banks give you simple linear rate of interest on your savings which doesn’t really adds up a lot to your investment. While on the other hand if you invest in stocks of the companies, your ROI on the sum of money will be compounded annually, this will grow your investment exponentially.
With everything getting easily accessible digitally, we are into this new age, where we do not need to go out to the company and ask for their prospectus and shares price and their financial statements. Every information is available online and you just need to login with your keys to find the best shares and best brokers online. A new entrant with high curiosity in the market can take some lessons online and open his Demat account and play and understand the market with a little investment but if you are here to make some serious investment then finding a good broker will be the first step. Now below are some points to keep in mind while entering in this market and investing in in your first share.
First and foremost you need to decide what volume you want to cash in. The volume of money you need to invest plays a major role as huge investment will require higher degree of market understanding. The beginners who have nothing to lose but gain a lot of knowledge from the stock exchange shall invest in bits and pieces and try experimenting with different profiles of stocks and shares.
After you have decided your bet money, now you need to come up with a name. NAME? WHAT? Yes you need to come up with a name of Stock Exchange where you wish to invest in. There are various Stock Exchange in India and the major being BSE and NSE. If you are looking to invest in short term and intraday shares then you can take up NSE as your platform and if you are looking long terms or more diverse stocks then you shall go for the BSE.
A full service broker will guide you through the pathway and will literate you about stocks and shares, he will also be maintaining your portfolio and advice you on your investment decisions and in return he will be asking for his fees and on the other hand Online trading platform will give you access of your account and there will be no direct contact with the experts as you will be handling your account on your own. Full service broker is better if you are a total beginner and you want to learn the stock exchange and if you want to learn all the how’s and what’s by your own then you shall go for an Online trading platform.
Initially shares were transacted in hard copies i.e., papers and one used to get the papers of all the shares allotted to him but as we entered this new era everything got electronic and even shares got electronic. This is why these online accounts are known as De-mat account as they have de materialized the paper work. Now what you need to open a De-mat account? It’s a very simple process, you just need to choose your platform as now various banks are also offering this service. Now you just need to furnish your PAN card, Aadhaar card, 6 months bank statements, address proof, signature and passport size photos and you are good to go.
You need to align your short term and long term goals with your investment strategy to invest in your very first share. Your first investment is very crucial as if you do not play this move wisely then you might get disinterested in the very beginning and will quit. First investment will play a key role in deciding your future growth in this market. Try investing in shares with high reputation in market as this reduce your chances of failure to some extent.
Stock Exchange is a volatile market and is highly fluctuating every minute. So chip in only if you have surplus lying in your bank balance. There’s no 100% surety as to your investment in the share market, it may drown in a minute or may transform rags to riches in few months.
Well, we are living in a Global Village and so we need to be abreast to the latest trends and changes. Any major or even minor but relevant event has an impact on our financial market and we need to be in touch with them. We also need to have very realistic expectations from our dealings in market.
If in any case you are connected to stocks or stock market then you must be having some basic idea about the stock exchanges and surely you must have came across these names NSE and BSE. NSE and BSE are the largest Stock Exchanges in India. The stocks of big and famous companies in India are listed either in NSE or BSE, or sometimes in both.
NSE: It is the biggest stock exchange in India and also world’s 3rd largest stock exchange in terms of transactions. The NSE has quickly grown to its prominence since its creation in 1992. The NSE has nearly 1700 listings and a market capitalization of $1.4 trillion. The NSE is very active and its transparency for frauds is considered better than BSE. Its Claim to fame is that it is the largest stock exchange in India in terms of daily turnover and number of trades. The CEO of NSE is Vikram Limaya who has resigned from a Supreme Court-appointed BCCI committee.
BSE: It is the oldest stock exchange in Asia established in 1875. The BSE is the biggest Stock Exchange, its long life span has resulted in having more than 5400 listings and a market capitalization of more than $1.6 trillion. Its claim to fame is that it is the oldest stock exchange in India. The CEO of BSE is Ashish Chauhan who is also a Distinguished Visiting professor at Ryerson University, Toronto, Canada.
Why listing? Listing means formal admission of a security to the trading platform of the Exchange. The main goal of listing is to provide liquidity to securities and mobilizing people’s savings for economic development. There are various compliances to be made to list securities under the stock exchange like complying with Companies Act, 1956, SCRA and guidelines provided by SEBI.
Now where are they indexed or showed or displayed? The main index of BSE is SENSEX and the main index of NSE is NIFTY. These indexes are the indicators of how the companies listed under the stock exchange are doing and their market position as depicted by the value of their Share Value.
Everything Is Electronic here now, trading at both of these Stock Exchanges is also electronic and an investor just need to quote the price for the particular stock and when the price will be matched with the best price of the buyer and seller then the transaction will be completed. The advantage of this order-driven process is anonymity. All orders in the trading system are placed by the brokers and they also provide online trading facility to retail customers.
Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays and holidays declared by the Exchange in advance). The market timings of the equities segment are:
(1) Pre-open session
(2) Regular trading session
The Govt. of India is taking progressive steps day by day and has been trying to attract investments in the Domestic market. There is an issue over the FDI across various sectors but the Govt. of India is taking progressive steps to ease the investment in Indian market. There is also a restriction on FII’s and a certain limit has been prescribed in various sectors. Please check the latest FDI list and the limit for more information.
Grey haired or not, there’s never a bad time to start investing and especially in the current scenario when inflation is rising with a never seen pace, you need to keep a good track of investment opportunities around you. Well, to your rescue we are here with some good investment options that are available in India.
Two very simple and vastly practiced ways of investing money are:
1. Where your money attracts money- Eh, what? Yes, you heard it right. You always have an option to lend money to someone or some organization for some fixed amount of time at a pre decided interest rate so that when your money will be back to you, it won’t be the same, you will also be receiving the interest on that money.
2. Buy something that could do wonders- Yes, sounds magical, but industry of real-estate and few commodities are actually known to do wonders. You never know, your investment may touch the sky overnight. For this, you need to follow trend of a particular industry and cash in when it looks like it will be the best time for investment.
There are then very specific investment options which have been proved very effective among masses like:
1. Fixed Deposits: There stands no chance that you haven’t heard of FD’s yet. FD’s are the best thing for both short term and long term investment. Our parents have trusted all their life in FD’s and there is a reason to it. FD’s are safe investment as they are made to the banks and bank will be liable to pay our dues so this has stood out as a safe investment.
2. IPO (Initial Public Offering): This can actually be a game changer if you what you are looking for? If you are a stock exchange guru or have the potential to work wonders at stock exchange then you can turn your money into piles of money and more. A good understanding of the market conditions and the potentials of the upcoming companies can actually make your investment rich.
3. Gold: It’s not just about the lustre, it’s the value beneath. Well with this increasing inflation at the international market every day, even the prices of gold is touching the sky and those who have invested in gold long before are living a lavish life today. Investment in gold needs time and patience, also you need to know the market conditions of both domestic and international market. Price of gold keeps on fluctuating and one can easily make money if he knows the right time to invest in.
4. Bonds: If you are hesitant about entering the Share market then please face this side. Bonds are safe investments and in fact some bonds are controlled and regulated by govt. so that makes it all the more attractive and a safe investment. Investment in bond is usually done for long period of time like 10 to 20 years but they fetch very good rate of return, as high as 7-8% on your investment.
5. Mutual Funds: Confused between Bonds and Shares, we know just your kind and have something for you. Mutual funds are for those who are willing to take a calculated risk, somewhere mutual funds are a good mix of both risk and safety. Mutual fund is a balance of risk and return. Mutual fund is a well managed scheme where their team of professional make a basket of different instruments like shares, bonds, debentures and that basket of diverse instruments brings the highest returns.
In the field of finance, compounding is known as the source of generating earnings and these earnings are later reinvested to produce their own earnings. Compounding is just another form of producing earnings from earlier earnings. Its practical usage is not limited to only specific sector but it is applied in almost all the commercial sectors.
It is also known as compounding interest due to the earnings which are generated monthly, quarterly or semi-annually. Its process is like that of a continuous compounding in which any interest earned immediately begins earning another interest. The greatest scientist Albert Einstein once said that compounding is the greatest mathematical discovery of all the times. Moreover from interest on bank loans to company’s debts, compounding interest is applied everywhere.
The biggest advantage of compounding is that it can convert the working money of any person into a strong income generating tool. It is a type of process through which anyone can earn profits in form of interest from reinvested earnings. It is the amalgamation of reinvestment of earnings and time. It is believed that those set of persons who are able to afford more time to their investments are able to regenerate more potential income.
In other words, compounding increases the growth of working money by maximising the earning potential of investments.
Compounding frequency is another constituent of compound interest in which the repetitive frequency about the accumulated interest is calculated. The compounding’s effect depends upon the nominal interest rate which is applied and on compounded frequency interest.
For comparing the interest-bearing financial instruments, financial analyst use the approach of nominal interest rate and the compounding frequency rate. From the outlook of many financial experts, nominal interest rate cannot be directly compared with different compounding frequencies. The procedure of compounding interest also assist a consumer in comparing retail products more fairly. The interest is also considered as annual percentage rate (APR), annual equivalent rate (AER), effective interest rate and other terms.
The first and foremost thing for investors is to understand the time value of money and in knowing how the exponential growth created by compounding can optimize their income and wealth allocation. The principle of interest works on one formula that a dollar today is worth more than a dollar in the future.
Understanding the time value of money and the exponential growth created by compounding is essential for investors looking to optimize their income and wealth allocation. This entire concept is known as the time value of money and discounted cash flow analysis (DCF) is just another component of it.
Even the investors who can purchase zero-coupon bond are also able to experience compounding interest. In the times of today where fluctuations in the market are high, many underdeveloped nations have been able to flourish because of the inclusion of compounding techniques in their business. Several compounding techniques including discounting cash flow analysis have helped many money lenders as well as investors to gain better profits.
At last, compounding has aided many banks, finance institutions facing financial crises.
In the year 1988, the government of India established a non-statutory regulatory body known by the name of The Securities and Exchange Board of India. But in the year of 1992 on January 30 it was given the statutory powers when the Parliament of India passed Securities and Exchange Board of India Act. Headquartered in Mumbai at the business district of Bandra Kurla Complex. Over the years its branches have been spread to many different cities like New Delhi, Kolkata, Chennai and Ahmedabad. Whereas it’s small branch offices are located in Bangalore, Jaipur, Guwahati, Patna, Kochi and Chandigarh.
The organisation is run mainly by its own members which consist of the chairman who gets elected by the President of India. It also consist of two officers from the Union Finance Ministry, one person from the Reserve Bank of India and five persons who get elected by the Parliament.
The main objective of SEBI is to protect the interest of investors in securities and regulating the market conditions that can favour the concerned people. According to the terms of its contracts its responsibility lies in safeguarding the interests of three main groups like issuers of securities, investors and market intermediaries. The organisation is known for holding judicial powers as it drafts regulations and statues in its legislative capacity. It is also known for conducting investigation and enforcement action within its administrative powers.
The statutorily regulated body of India (SEBI) is also criticised by many people because it inner-working is shielded from direct accountability to the public. Only Securities Appellate Tribunal is one such organisation that keeps a check on its power. Its panel consist of three judges who can make a direct appeal to the people of India.
Remember the time of Great Recession of 2008 and the biggest scam held by the company naming Satyam Fiasco. It was only the SEBI that took regulatory steps in mitigating the effects of these problems by passing some concrete steps to make sure that these problems do not occur again. Thus, this was the probably most extreme step of SEBI in stabilising the economy of India.
The powers of SEBI is not only limited to one but it has many starting from the authority of intervene in inside trading to imposing of monetary penalties.
During the time of inspection and scrutiny, it can ask for information related to the business transaction from the stock exchanges and intermediaries.
In case of any kind of violation made by the capital market intermediaries or other participants, it can impose monetary penalties on them.
As the rules of SEBI has strictly stated that it works in safeguarding the interests of investors which implies that it can issue certain guidelines to intermediaries on which they need to work. It can also regulate the functions of merchant bankers or insider trading.
The working of this organisation has not only created a uniformity in Indian market but has also created the transparency in the organisation.
Well, if this question was that simple then everybody would have tapped in the share market and gained millions but sadly it is not that simple. If you have been in touch with the share market and have some knowledge about the prices of shares then you must know that the prices of shares are highly volatile in nature and it is really difficult to estimate the share value of your shares after a period of sometime. Your share or stock prices changes every day by market forces and you cannot have the exact idea about the stipulated fall or rise in price. By market force, we mean that the prices of shares are driven by the demand and supply. It is easy to understand about the forces demand and supply but what is difficult is that why some particular shares or what makes a stock of shares so much popular among the masses.The power of god compels you to? Nah, it is necessary to research and understand the behavior of the masses, on what decision they buy or sell a particular stock of shares.
First of all let’s discuss what exactly Price-Fluctuation is. In share market, in an auction of sale of shares, there are many players who bids, and the highest bidder wins the auction and the transaction gets completed. When the demand for a particular type of share rises then the price of that share increases but if the demand goes down then the price of the shares also declines. This is a simple application of demand and supply in the share market. Sometimes the price of the shares goes too down or rises with a boom during some season and that is the price fluctuation. Sometimes there is a surge in suppliers of a particular stock waiting to dump in the market and lack of buyers, which leads to decline in price of shares. There are various reasons to price fluctuation but the core is demand and supply forces in the market.
What causes Stock prices to fluctuate? What is the main reason behind demand and supply?
Now here we list down the various reasons behind demand and supply fluctuation and how do they affect the share prices:
Everybody must have been puzzled by the word ‘NIFTY’ at some point of time in their life. So, what is Nifty? To put it simply, Nifty is the equity benchmark index of one of the biggest stock exchange of India. Nifty is the index of NSE (National Stock Exchange) which was started to end the monopoly of BSE (Bombay Stock Exchange) in the Indian Market. The term Nifty is derived from the word National and Fifty, which means that Nifty only consists of top 50 companies from 12 different sectors. Another word also used for Nifty is ‘NIFTY 50’ as described earlier that it contains only top 50 companies across various dimensions.
The major part of the economy of the country is dependent on the stock exchange and the indexes of the major stock exchanges give exposure to the investor of how good the economy of the country is and how beneficial it is to invest in share market in the prevailing market conditions. As we have understood now that Nifty is computed from the performance of the top stocks of the masters of the industry so it gives us the average value of the top industries. Some other money instruments like mutual funds, uses Nifty as benchmark and the performance of the mutual funds is assessed against the performance of the Nifty. NSE is famous for futures, options and intra-day trading and all of them trades with Nifty as an underlying index. When Nifty shows great progress that indirectly means that our domestic market is doing good and our economy is growing well.
Well now this looks tricky! This must be your expression but it isn’t that tricky. Nifty is calculated by using the market capitalization weighted method as per which weights are assigned as per the size of the company, larger the size, larger the weightage. This is why the larger stocks would make more difference than the smaller ones in the market. Two universal points while calculating Nifty is: The base year is taken as 1995 and the base value is set to 1000.
Market Capitalization = Shares outstanding * Market Price per Share Free Float Market Capitalization = Shares outstanding * Price * IWF (Investible Weight Factor) Index Value = Current Market Value / Base Market Capital * Base Index Value (1000)
Now this is a new technique for the beginners who are just entering the stock exchange. There is an ever going learning in the stock exchange even if you have spent all your life in the stock market, You are always a learner in stock market as every now and then you come across with few dilemmas which you haven’t came across all your life. To tackle the problem of lower gains from the stocks, many processionals came up with this technique of value investing, where you invest in a company in its early stage and then wait for your returns.
“Price is what you pay. Value is what you get.” said Warren Buffet. Just like these great words, this great man has been a firm believer of this technique and made everybody believe that this way of investing is possible. Value investing is a technique where an investor, invests in a busy in its early phase and then wait for the return. The main idea behind this is the investment in stocks which are undervalued or are valued less than their actual intrinsic value, which leaves scope for profit. Many stocks are under-valued and they need to be tapped and cashed in to make huge gains.
In value investing, the goal is to tap in the undervalued stock that comes in an irrational manner to the investor and the investor seeks to gain profit from this irrational investments. This is a very subjective and selective process as two different investors can come to two different views regarding the same stock. There are two ways by which an investor can tap in these irrational stocks, either by selecting stocks with lower than average price to book ratio and lower than average price to earnings ratio with higher dividend returns. The difference between both will be the profit to the investor. Another concept to clear further doubts will be to consider the margin of safety to come to the intrinsic value of the stock. In total the inherent or the intrinsic value is required of the shares to estimate which is a valued investment.
Also known as the unglamorous stocks, the stocks that are undervalued or who are valued much lower than what they should have valued are known as Undervalued stocks. In the Modern Era of Amazon and Flipkart, we can call these stocks as best deals where we get more than what we have paid for. Generally, the stocks are under-valued due to the following reasons:
Don’t get confused, you must have come across various methods to value shares which might have left you all confusing. There are various methods by which you can value the shares and here we break it down to you in simple jargon-free language, how to value shares. The below-mentioned points will help you understand the valuation of shares in a better way:
The P/e ratio measures the relationship between a company’s stock price and its earning per shares of the stocks already issued. Now how it is calculated? Well, the formula is very easy, Price per share/Earning per share. What does it indicate? Simple, If the P/e ratio is high of a company then the investor and potential investor will have more confidence in the stock of the company and the demand of the company's stock will rise and will result in a higher valuation of the shares. P/e ratio helps a lot in the valuation of shares as it is directly related to the stock price. The P/e ratio can highly affect the value of the stock.
This has been witnessed that whenever a company announces its dividend, the price of the stock of the company fluctuates. Now to tell you why? Because the Dividend distributed among the shareholders of the company has a major impact on the price of the shares of the company. If the Dividend yield is high and the company is distributing more and more dividend among its shareholders after deducting all its cost that means the company is earning huge profit and the company has surplus money which attracts the potential investors to invest in.
The operating profit margin is in short the profit that the company makes in its daily business and not from any sale or purchase of some machinery, so this profit also has an impact on the value of shares. When a company has a high operating profit margin and is actually earning huge profits then this makes one thing clear that the company has the capacity to pay a huge dividend to its shareholders. Higher operating profit margin indicates an increase in demand for the stock which will value higher the stock prices.
No, seriously? Yes seriously, even the price to book ratio has a big impact on the value of shares. This Price to Book ratio shows one simple thing if the company gets torn up today then what will be the net worth of the company or what will be the company left with. This is a very useful technique because some companies may not be doing well in their business operations but their net worth is still high due to their high valued assets. The various assets that company has invested in during their tenure have a lot of impact on the value of the shares and a higher book value of the assets means higher net worth of the company. The higher net worth of the company also helps in building the reputation of the company and thus has a major impact on the value of shares.
Fundamental analysis is a method known for assessing the intrinsic value, economic, financial, qualitative and quantitative factors associated with the bond. It is a kind of study that analysis the value of security by determining its macro-economic and micro-economic factors. It is the most appropriate method because it analyses by blending the economic conditions of an organisation with its financial conditions. It helps an investor in comparing the current price of any security as it offers the accurate quantitative value of any asset. Moreover it also eradicates the problem of over-pricing of shares.
Fundamental analysis is a quite beneficial method for the underlying companies because it determines the financial health by obliterating the difficulties which were coming in its working. Its basic purpose is to identify those sets of companies which are fundamentally strong or those which are weak. Investors invest in the strong companies by having the belief that their proportionate amount of shares’ price will rise in the near future. While in case of short companies, they sell their shares owing to the fact that the value of these shares might fall in coming times. This method is also known by the name of security analysis because it predicts the path of prices through the study of historical data like price and volume.
The major role of fundamental analysis in a company is to investigate into the financial statements. It is also referred as qualitative analysis because it consist of revenue, expenses, assets, liabilities and other financial aspects of a company. Fundamental analysts are able to get the detailed information about the company’s future performance.
Fundamental analysis includes economic, industry and company analysis. These three analysis also determine the intrinsic value of market shares.
The buyer is recommended to buy the share if its intrinsic value is higher than the market price. These analysis also helps the buyer to sell the shares if its value is less than the market price.
The process of fundamental analysis requires real, public data is estimating the value of a security. Most of the fundamental analyst use this method to evaluate the stocks. It is not only beneficial to analyst but also benefits the investors by letting them know the exact price value of the share. Fundamental analysis also allows the investor to know about the bond issuer like possible changes in credit ratings.
Top down or bottom-up approach is followed by the investors while using the fundamental analysis. The investor who thinks of top-down investing starts his/her analysis with global economics that includes both international and national economic indicators. GDP growth rates, inflation, interest rates, exchange rates, productivity and energy prices are also included in the top-down investment. Investors in this segment narrow their search to regional analysis of overall sales, price levels and foreign competition.
Whereas the investor who is investing in bottom-up investment starts with specific businesses and proceeds in opposite to the top down approach. Thus the usage of financial analysis has brought more transparency in the financial sector by eradicating the possible chances of overpricing of shares.
For analysing the financial health of a company, a financial analyst analysis the financial statement that consist of financial ratios. Financial statements give detailed information about paid dividends, operating cash flow, new equity shares and capital financing.
The valuation models used in the process of financial analysis determine the growth rates (income and cash) and risk levels. For calculating the present value of the dividends that can be received by the investor, a financial analyst uses the model of discounted cash flow. Even the debt that is acquired by the company is also calculated in determining its financial status. The company’s debt is also assessed by using the debt-to-equity ratio and current asset to liability ratio.
Price-to-earnings ratio is the simple common model that gives an understanding of perpetual annuity (time-value of money) to a financial analyst. It is also called as the discount rate that is accurate for analysing the risk of business.
PEG ratio is also giving unified growth estimates whose validity depends on the growth which is determined by the financial analyst. For attributing the expected changes in growth from current P/E, IGAR model’s help is required. These financial business models are also useful in presenting the quantitative value of stock’s historical growth rates in respect to comparison index.
Gone are the days when subjective interpretation of the fundamental data used to take place in companies. With advancement in technology, computer modelling of stock prices has replaced the antiquated systems of maintaining the financial balance sheets.
The usage of financial analysis help the company’s shareholders to get an insight about its decisions, policies and turnover. More or less, it also informs the investor about company’s total net worth. It represents the annual report of a company that consist of financial highlight, management discussion and analysis, corporate information and report on corporate governance.
Moreover it also gives a brief information about balance sheet which will consist of profit and loss statements, equity research along with business transaction details of the company.
Those set of people who are thinking of investing in the long-term projects may get benefitted from taking the help of financial analyst who can predict and tell them the right to hold the shares or sell them.
The usage of financial analysis has helped the Indian economy to get stabilized by removing the difficulties. In recent years, the usage of newly devised financial models has replaced the earlier problems like overpricing of shares and enhanced the transparency in several financial companies.
What may appear to be complicated on the surface, usually boils down to the basics! Whatever involves Math usually looks ugly to us but we cannot deny the fact that a little understanding of mathematics is of great importance in stock market. The stock market is so complicated to understand at times that you get disinterested to such an extent that either you get lost learning deep in the market or just pulls off the plug once and for all. Whichever category you belong to, we have just the right guidance for you if you are trying to understand the technical analysis of stock market.
The complication of stock market boils down to simple demand and supply factor to understand the direction of the trend. Technical analysis is the study of the statistical and historical data of the market including the price and the volume. This is basically the job of the technical analyst to study the economic and the market behavior of the market to make future predictions of the stocks. So we can conclude that the basic study of chart pattern and trends of the stock prices is known as technical analysis. Do we need to do it? Not necessary but who would say no to money if it can be easily earned with basic study of patterns and trends.
The technical analysis is in simple words, the study of the charts, patterns and trends that has been going in the market about the stocks. This process of technical analysis is not a new process but a traditional practice performed since ages, it’s just we have named it something now. We have been looking at the trends of the winning and losing of a particular team in various sports and pick our favorite ones, or the speculations we used to make in our junior class on result’s day about who is going to come first based totally on their previous records. These were just few basic examples of the technical analysis and how we have been using it all the while. Now, using technical analysis in stock market needs some basic understanding of few concepts of economic and behavioral science to understand the ongoing trend in the market. Now this looks like a calk walk, isn’t it?
To be honest, money is the greatest incentive of this analysis and everything boils down to money. The technical analysis can be of great help if done correctly and it will be directly reflected on your financial health. Few points are discussed below to understand the importance of technical analysis:
1. Calculated speculation: A well-researched speculation is better than just a random blunder in the stock exchange. With technical analysis, you know the direction of the stocks, where they are heading towards and you know what might happen. Technical analysis gives you an edge while making speculation; in short you are making a calculative speculation which will increase your probability of making gains in the stock market.
2. Early signs of upcoming danger: When you are constantly using the technical analysis in the stock market, you realize certain opportunities and dangers due to the constant uptrend or downtrend of a particular stock and this gives you an opportunity to pull off the plug before a danger strikes or cash in before a jackpot is about to happen.
3. Short-term opportunities: While on a constant scanning of the stock market you sometimes sees an opportunity like a particular company is selling a major part of its assets or purchasing some which might have a huge short-term impact on the prices of the stock so technical analysis also helps in identifying short-term opportunities.
Technical analysis and fundamental analysis are the two schools of thought that are used to make predictions about the future value of the shares. These two techniques are very different from each other, while one is more facts driven and complex, on the other hand, the other is less fact-driven, easy to use for the beginners but offers less accuracy. Enough of creating suspense now, let’s understand about each of these methods and how they are different from each other.
Fundamental analysis is a method of evaluating a security to find out its intrinsic value by examining various factors like economic, financial and other qualitative and quantitative factors. It deals with the long term goals and low risk securities. On the other hand, Technical analysis is an analysis for forecasting the direction of the prices through the study of past market data, price and volume to extract the trend. It is a short-term, quick decision making who aims to invest high frequency.
The technical analysis uses charts and tables to achieve their goal of extracting trends from the data while the fundamental analysis uses the financial statements of the company to check the intrinsic value of the company. Both works on different techniques and aims for different goals. The reason behind the examining of company’s financial statements in fundamental analysis is that it favors the intrinsic value of the company and if the stock price is valued below the company’s intrinsic value then only it is considered as a good investment while on the other hand there is no use of financial statements in technical analysis instead only stock prices are studied as they already contains all the relevant facts. The Fundamental analysis is generally used for long term while the technical analysis is considered best for intra-day and short-term investments. Even the goals of both the houses are very different, on one hand the technical analysis aims for shorter goals and identify many short-term and medium-term trades to flip a stock quickly and on the other hand the fundamental analysis looks to invest in the stocks of the company for a long-term prospect.
Though, these two approaches are totally different from each other to analyze the securities and follow opposing techniques to achieve their goals but a blend of both of the approaches is the best mix when it comes to investing or trading in stock exchange. People have been benefitted from this mix, as this serves as a complete purpose packed approach to trade and invest both in long and short term securities. A mix of both the techniques shall be used to predict the future values of the stocks to gain the maximum profits.
Fundamental analysis and Technical analysis are the two famous schools of thoughts when it comes to analyzing the stock market to predict the future valuation of the stocks. You must have heard a lot about both of these techniques and their various implications but let’s discuss about the pros and cons of both of these techniques and also what they actually mean.
Fundamental analysis is the art of evaluating the intrinsic value of the stock to find the long-term investing opportunities. It relies majorly on the financial statements of the company like balance sheet, profit and loss statement and cash-flow statement. The aim is to check whether the stocks are valued below the intrinsic value of the company or not.
Every approach has its pros and cons, so here we discuss the pros and cons of the fundamental analysis:
1. This process is very easy-to-use and most of us will agree with this that gathering data from the financial statements is much more convenient.
2. A common practice of all the investors is to place their bet on the company with good financial health.
1. For sure this is a lengthy and time-taking process. This process involves a lot of digging of the financial statements of the company which makes it a lengthy and tiresome process.
2. Making predictions for long-term investments on the basis of the historical or the past records of the company is not always considered a valid explanation.
3. Demand and supply are the deciding factors for the valuation and prediction of stock prices so financial statements seem to be irrelevant in this case.
Technical analysis is the process of analyzing the charts of the stock prices to identify the trend of the stocks and predict the future valuation of the stock. The goal is to understand the demand and supply for a particular stock and to understand in which direction the stock is going in.
1. The first and foremost is that it rationalizes the price you are paying for. You have a track of the stocks you have invested in.
2. The price and volume also plays a crucial role in the prediction of the future value of the shares and the on-going trend.
3. Precision is the outcome of this skill based technique. Usually this technique lands you with near to accurate results.
1. It is a cumbersome process as it involves a lot of tracking and calculation of the market price of the stock to find the trend.
2. As already said, it takes skills and a lot of experience to estimate the trends and the patterns.
3. Apart from the skills and proficiencies required for this method, this method also demands previous knowledge of the company as an exception because sometimes a company with bad shares valuation
What is the first emotion that comes along with the word Stock Exchange? Loss, risk, fear, disappointment etc. Yes, we know you and we can understand all your insecurities. But imagine if you were out on a shopping then what will you prefer a basket of various fruits or a basket of apples? Obviously if you can get diverse quality in the same amount then that is going to be our preference. In the same way, if we are to invest in the stock market then rather the gaining profit from only one type of stock, we shall aim to make a sweet little basket of different types of securities. This process of sharing the risk among various securities is known as Diversification of Investment.
As discussed earlier, Stock Exchange is a risky affair and you need to cautiously invest in the stock market to gain the maximum. In a diversified portfolio, the assets don't correlate with each other, as when one rises the other falls. It lowers the overall risk because, no matter what the economy does, some asset classes will benefit. A basket full of diverse stocks never harms any investment and only enriches the investment. Many investors think they own a well-diversified portfolio because they own a large number of stocks or stock funds across numerous accounts. But upon closer analysis you will find that the investment is concentrated only in one kind of stock and so the risk is not shared which doesn’t fall in accordance with the Diversification.
A diversified portfolio is a big pro in itself as you do not need to depend on only one kind of investment to make gains. So the first benefit of diversifying is that it helps level out volatility and risk. Another strong pro of a diversified portfolio is that you won’t be suffering from losses while a crash down in the domestic market as your investment from the global market will balance the losses. Economic fall or break down doesn’t necessarily mean there’s no economic boom in some other country. Your basket of investment will compensate for the foul products.
The cons or the disadvantages of a diversified has been overlooked since so long but there is a downside too to this kind of investment. Firstly you will be getting only average returns as if one stock is incurring losses and others are fetching profits, the overall will leave a null effect or a minimal effect at times. You need to be really lucky or extremely skilled to make huge gains from a diversified portfolio. Also sometimes, the investor, just for the sake of investing or diversifying, invests in any stock which is little known to him which may have an adverse effect on his portfolio. This, for the sake of diversifying attitude usually results in average to no profits in a diversified portfolio.
Stock market is a tricky place and if someone has a genuine interest in it to make money then along with the basic knowledge of stock market, one needs to be adaptable with various tools too. If you are interested in stock market and want to play it like a pro then here are some must use tools that will increase your chances at making a more accurate estimate of the future values of the shares:-
The most simple and easy to use tool to understand the trend in the stock market is the Microsoft Excel. You can simply copy the market price of the particular shares of a month and check the trend if the price is expected to rise or fall in the future. The trend of the average prices gives a clear understanding of the prices and their most likely behavior in the future.
There are line charts, candle stick charts and various other charts to understand the technical analysis of the stock market. Every chart displays some value and some trend and those trends help us in predicting whether the market is going downtrend or uptrend. The information of any stock can be plotted in a chart to study the average change in the price of the shares to get a better idea about the future value of that particular stock.
This is a very simple and the most effective tool. You just need to plot MACD points in the graph and check where the two lines are meeting. There are 2 lines, one is a fast line and other is the slow line. So, when the fast line crosses the slow line, it’s a buying signal and if the slow line crosses the fast line then it is a selling signal.
RSI works on the basic principles of magnitude of recent gains and losses to see if the assets are oversold or overbought. To make the study easy, they plots the RSI on the scale of 0-100, where if it is above 70 then it is overbought and if it is below 30 then it is oversold. By understanding this you can estimate the appropriate time to invest or disinvest in the market.
There are various online portals where you can simply stay updated every minute and follow the trend. These online portals not only provide you with the live updates but they also provide expert opinions and tech support on whether a particular share is going to rise or fall. This is a simple model of binary option where you place your bets on the stocks, whether they will gain or lose value in the next minute. Technical analysis is the base for binary option and various other portals. Google Finance Charts also serves the purpose as they keep us updated with the trend every minute and provide better indication of uptrend and downtrend.
You must have got an idea about from the names that one thing is positive and other may be negative. The support and resistance are placed on the higher and the lower caps. In case the actual price crosses any of the caps then it will indicate either an upward or a downward. In case there is an upward trend then wait until it gets constant then sell your shares and if it is falling down then wait when it crosses the cap and then chip and invest in the shares.
Having trouble with your taxation? Sitting with your CA and sorting out all your confusions and still doing appropriate tax saving is a cumbersome business and here we help you with an easy prep for a good understanding of taxation in Capital Market. See Taxation gives you heart-attack, we know it and we care for you, so here we stuff you up with the required knowledge if you are dealing in Capital market and have troubles with taxation.
Well, First thing first, the due dates, what are the due dates for filing the returns? The dates are July 31 for the individuals and September 30 for the companies, irrespective of the business or trade they are into. And Also the accounts needs to be audited in case the total turnover exceeds 1crore and on failure of submitting the tax audit, a penalty of 0.5% or 1.5 lakhs, whichever is less will be imposed. The gains made from Stock Exchanges are usually distinguished under the head Capital gains and will be taxed as per their holding period.
1. STCG: If you have made any gains from shares within 1 year then it is known as STCG and it will be liable for 15% taxation. You can always set off your business expenses with this gain in STCG. Any STCG losses can be carried forward to 8 years and can be set off against business income. There is also one category as Intra-day meaning the transactions where buying and selling happens in a single day and any gains or losses made from it are called Speculative Gains or Losses. These Speculative gains are deemed as business income and taxed accordingly and the speculative losses can be carried forward up to 4 years but cannot be adjusted against any other profits.
2. LTCG: If you have invested in shares and stocks for more than 1 year then it will be known as LTCG. In case of profits, the profit will be liable for 20% taxation and if you have already paid STT (Security Transaction Tax)then it is exempt from tax under section 10(38). In case of Loss, if STT has been paid already then it cannot be adjusted against STCG but if not paid then it can be adjusted.
STT is paid during our buying when dealing in trading stocks so no further treatment is required as it will be already included in the cost of your shares and derivates and all your trading and other costs or expenses can be shown as your expense on while calculating your gross income.
Depending on your source of income the ITR forms are to be filled and ITR 1, 2, 4 are generally used for individuals with either salary income with rentals or salary income with rentals and interests, or business and profession income, and ITR 6 is to be filled by the companies.
Well there is no hard and fast rule to make money in stock exchange. A good research, calculated risk and confidence in your investment can bring you a fortune. Many experienced players of stock exchange have played with different portfolios and investments and all boiled down to few key points to make it large in the stock exchange because everybody has this question after spending few time in Stock exchange that Have I made it large!?
A diamond is forever! Cool idea, let’s try this with shares but for some time less than forever because not every share is going to gain value every day. There are some stocks which might not have any prominent value at the time of buying but gains huge confidence over the time and thus some stocks are not meant for intra-day or short term but shall be held for long term. New emerging companies initially do not have much confidence of the investors but as soon as they start growing they gain confidence of the investors and their share price shoots up. Experienced players of the stock market are well versed with this research and can identify easily that which company has the potential to grow, and thus they make huge profits out of their investments.
Compounding is said to be the 8th wonder of the world. As when you are investing in any bank’s FD or bonds then you are expecting simple interest on your sum invested but when you enter the stock market and invest in stocks then your sum money will grow exponentially. The interest rates are compounded in case of returns from stock market which is considered a better investment decision than investing in bonds. Though bonds and FD’s are safe investment but Stocks fetches much higher return on investment and this calculated risk is worth taking.
We have seen many big companies, coming back after having a disastrous fall. Though this come back might take decades or two sometimes in the process but companies with skilled professionals and the will to come back, surely makes a comeback and recovers all the money of the investors. Your shares value might have dropped from lakhs to hundreds but if the company is promising and dedicated then your money is destined to recover and sometimes also fetch huge profit. Patience is the key in stock exchange. Who knows that the shares you just gave up brought fortune to somebody else because they stayed stuck to it.
Over the time, top professionals have developed various strategies to gain the most from the stock market and value investing is one among those. Value Investing is a universal concept adopted across all stock markets for gaining huge wealth. It is an investment strategy that seeks to buy stocks of companies that have been undervalued by the market. The basic idea of this investment strategy is buying stocks at less than their intrinsic value as it generally involves buying securities whose shares appear under-priced. It focuses on the business and its fundamentals rather than external influences on the stock’s price. This strategy involves a well researched process where the investor puts all his confidence in a company’s strength and wait for the company to grow which will bring him huge profit.
Futures are determined as the financial contracts that compels a buyer to purchase an asset or a seller to sell an asset. Over here, the financial asset can be related to physical commodity or can be a financial instrument whose price is determined at the future price. The quality and quantity of any underlying asset is also determined by future contracts. These contracts are also considered consistent in facilitating trade on the basis of future contracts. It is said that some future contracts are made for the physical delivery of the asset whereas other contracts are settled in cash.
In the year 1972, financial futures contracts were introduced while the currency futures, interest rate futures and stock market futures were introduced after that year. The future contracts for agriculture and natural resources were also negotiated.
The futures markets are branded by its ability to use high leverage which is relative to stock markets. These markets are quite helpful in speculating the price-change of the underlying asset. Let’s take an example of agrarian economy where a corn producer can use futures for securing a certain price and for reducing the risks.
In finance anyone can get confuse over the appropriate usage of options and futures. From the term options it can be said that it grants the right to a buyer to buy or sell the underlying asset at expiration. Whereas the future contracts necessitates a holder to complete the terms and conditions prescribed on his contract. The categories of actual delivery rate of underlying goods that are stated as low in future contracts.
The main use of futures contracts is to lessen the risk of price or exchange rate actions that allows the parties to fix the prices or rates in advance in future transactions. It is proved beneficial to those set of people who are expecting to receive payments in foreign currency in future as they can safeguard their payment against any unfavourable moment which might occur in the currency.
These contracts also provide opportunities to certain set of traders who can predict the rise in price of asset in coming future get the benefits of obtaining good profits.
For minimizing the credit risk, a trader must create a margin of near around (5% to 15%) of the contract value. The approach of margin in futures is quite different from its usage used in equities. . It is considered as good deposit because it covers regular obligations that are required for securing the position. Margins are further classified as clearing, customer and initial margin.
Like clearing margins work as financial safeguards that ensure companies perform on their open futures whereas the initial margin is a contract which is required to initiate a futures position.
A clearing house guarantees to minimise the risks that are borne by traders during the regulated future exchanges. The third party agency enacts the role of a buyer to each seller or seller to each buyer. It allows traders to transact without any thoroughness on their counterparty. For those set of hedgers who have physical ownership of any covered commodity, the margin requirements are waived in futures markets.
As we all know the term futures in finance means to obligate a buyer to buy a share. But then the question which comes very often in the mind of any investor is that how he can trade in futures contracts? Trading in future contracts is quite simple just like the process of selling and buying an asset.
For trading in futures contract, an investor selects the asset that he/she wants to trade and does create an initial margin deposit with broker. After this process a trading meeting is organised by broker for a specific asset with the clearing house.
The extensive array of underlying assets, commodities and stock indexes constitute in futures contracts. Due to their active presence in secondary markets, these contracts are considered to be different from other forward contracts.
Future markets work as the saviour for the companies as well as mid-level business because it safeguard them from instability of price in different securities. It benefits investors or speculators who desire to yield profit from the change in price of an asset.
It is a type of forward contract between a buyer and a seller of an asset. Through this contract, they agree to exchange goods and money at a future date by keeping its price and quantity determined at the time of today.
With the great fall of depression in India’s economy in 2008 many investors thought of choosing a contract that can protect their money against inflation in commodities. Perhaps this is the reason why many investors, money lenders and beginning entrepreneurs choose the medium of future contracts to survive in the business. Most importantly, it also offers them a standardised, regulated and risk free aspects which makes it grab the attention of every new comer in business.
Another fact which makes it capture the attention of investors is the guarantee given by clearinghouses that futures market will honour their obligations. Thus it is the foremost reason behind it getting the higher preference by many of them.
The settlement of futures trade occurs in physical delivery as well as in cash settlement. While dealing with commodities and bonds, physical delivery settlement method is opted by investors. In other words physical delivery implicates the amount specified of underlying asset which needs to be delivered by the seller of the contract to the exchange. Whereas cash payment is made on the basis of underlying reference rate like short term interest rate or the closing value of a stock market.
Yes it do, future markets work as the channel to yield profits for traders and investors due to margin payments. Margin payments is built up of initial, exposure, margin, premium and mark-to-market margin. Its ability in leveraging investments and in increasing returns has made it more prominent among the shareholders.
An option is generally considered as a contract which offers the right to a buyer. But it does give the obligation to the buyer to buy or sell an underlying asset or instrument which is given at a specified strike price on a specified date. The price at which a derivative can be implemented is called strike price and it is referred to as the price of the derivative’s underlying security. In the put option, the strike price is determined at which the option holder can sell the underlying security.
According to some financial experts, the strike price may be in reference to the market price of the underlying security or commodity on the day an option is conceived. An option is fixed at a discount or at a premium rate. It conveys the owner of shares about the proper time of selling the shares or holding them. An option which conveys the owner about the right time to buy a specific share is referred to a call. Whereas the put option is considered as those set of shares which can be sold at a specific price.
The share issue is known as the option which is granted by the seller to a buyer and it is also considered as the part of an employee incentive scheme. Another way can be when a buyer would pay a premium to the seller for an option. When the strike price of an underlying asset is below the market price then a call option is practiced. The premium is added to strike price of the asset when it is acquired by a buyer. An option expires when its expiration date gets executed without the option being exercised. The premium is considered as the income to the seller and it is accounted as the capital loss to the buyer.
With the help of counter-transaction or an options exchange, the owner of an option may be eligible to sell it to a third party in any secondary market. The difference between the market price of a stock and strike price of an option can differ and it determines the market price of an American style option. Due to numerous factors like the necessity of an option holder to sell the option before it approaches the expiration date and lack of financial resources to exercise the option can lead to the variation in the actual market price of an option. The holders of options are never entitled to any of the rights linked with the underlying asset like voting rights or the right to generate income from the underlying asset like a dividend.
For the past, many decades options contracts have been known to the world. In the year 1973, The Chicago Board Options Exchange was created. Its administration was built through the help of standardized forms and terms which were passed through a guaranteed clearinghouse. The financial institution of Chicago has enhanced the two most specific activity areas like in trading and academic interest.
This has further led to the amplification of options in the times of today and all of them are produced through clearing houses which trade them to the buyers in a standardized form. Whereas the counter-options are meant to be bilateral and customized contracts which lie between a buyer and seller. Options are the constituents of an extensive set of financial instruments which are known as derivative products or simply called as derivatives.
There are many forms of trading options like exchange-traded options, stock options, stock options, stock market index options, options on futures markets and bear contracts.
Exchange traded options are classified as exchange-traded derivatives. These options consist of standardized contracts and these are settled through the fulfillment which will be guaranteed by the Options Clearing Corporation (OOC). These contracts are standardized and accurate pricing models of them are also available.
Options can be traded in more than one way. The ways of trading options include exchange-traded options, stock market index options, bear contract, over the counter options and futures contracts.
An exchanged traded derivative is another name given to the exchanged traded options. Exchanged traded options consist of standardized contracts which are settled with the help of clearinghouse and require the fulfillment guaranteed by Options Clearing Corporations. Accurate price models are offered on these contracts because they are standardized.
Those set of options which can be sold by one party to another and offer the right to the buyer but do not obligate the person with a right to buy or sell the stock within the specified period of time. American options are the one which can be executed between the date of purchase and the expiration date of the option.
Those set of options that are not listed on an exchange but can be traded between two trade private parties. Since its terms of (OTC) options are unrestricted therefore it can be individually modified to connect with any need of business. Thus option writer is well-financed institution. Some of the most commonly used option types include interest rate options, currency cross rate options, and options on swaps.
These are those set of options which facilitate the buyer with the right to buy an underlying security at the strike price. Moreover, the option writer is needed to give the underlying security to the option buyer only when the stock’s market price surpasses the strike price.
It is always believed by an option writer that the prices of the underlying stock will drop or remain constant in relation to the option’s strike price until the date of the option’s expiration. Thus this is how one can yield the maximum profit. As per the research analysis of many well-known financial analysts, the optimum value of profit that an option writer can earn is determined by the premium he/she received in selling the option. If the buyer’s stock rises above the strike price then the buyer might be able to acquire the stock for a low price and earn few profits by selling it at the current market price. Moreover, the option buyer may lose the premium in the case when the value of the underlying stock falls below the strike on the date of expiration.
This is the type of option which allows the option buyer the right to sell at the strike price. For example, a put option believes that the market price of the underlying stock will fall below the specified strike price on the specified date. The option writer’s maximum profit is achieved when his underlying stock’s price remains at the same price or closes above the specified rate. Unlike other options, a put option holder gains benefits from the decrease in underlying stock’s price below the strike price. The put option writer is obligated to earn a profit when the underlying stock’s price falls below the strike price. Financial analyst calculates the put option writer’s profit by subtracting current market price along with paid premium from the strike price. And then multiply the entire value by 100.
It is a type of analysis whose main focus is on the data originated from the sources like financial records, economic reports, company assets and market shares. For conducting important analysis of a company, investors do need to analyse the financial statements of a company like balance sheet, income sheet and cash flow statement. These types of statements are produced to the public in form of 10-Q or 10-k. Moreover, investors are also granted with a right to analyse the revenues, expenses and profits of a company by analysing their annual earnings reports.
In financial analysis, an analyst generally measures the company’s profitability, liquidity, solvency, growth trajectory and leverage. Financial analysis consist of different ratios which determine the health of a company. The company’s ability in paying short-term liabilities is determined by comparing the current ratio with quick ratio. Current ratio is always calculated by dividing current assets by current liabilities. If the analysis of a stock analyst yields that the current ratio of a company is less than one, then it indicates that a company’s financial health is very poor. It also showcases that the short-term obligations may not be covered and can become due.
The comparison of financial statement with its current financial statement is one main work executed by stock analyst. The main purpose for performing this action is that it informs an investor about the company’s growth and stability and thereby keeps him at a safer side in the business. This analysis also deals with the comparison of operating profit margin of two competing companies and rigorous analysis of their income statements. Operating profit margin is known as the amount of revenue which gets left after operating expenses get paid and is considered as the proportion of revenue that gets left to cover non-operating costs. For calculating operating, analyst divides operating income by revenue.
Technical analysis is the second method of stock-analysis and it mainly focuses on the study of past market action to forecast future price movement. The significant role of technical analyst is to analyse the price and volume, demand and supply and other aspects of financial markets. For understanding the graphical illustration of stocks’ trend, technical analysts use charts as a key tool for analysing the financial market.
For an assumption, a technical analyst may mark some specific areas like support and resistance level by using the help of a chart. In business charts, support levels are always market below the current trading price and it also showcases the resistance markers which are placed at previous highs above the market price of the stock. A stock analyst can easily determine the bullish outlook if the break is above the resistance level in business chart. And he can also understand the bearish trend, if the break falls below thee support level in a business chart.
When price trend analysis gets analysed by the supply and demand forces, only then technical stock analysis is known to be effective. The technical stock analysis may not turn out to be successful when it gets impact from the external factors get involved in determining the price movement and in analysing stocks. External factors that can easily affect the technical analysis include stock splits, mergers, dividend announcements, death of a CEO, accounting scandals, change of management, monetary policy changes etc.
Stock analyst do not face any problems in accessing the fundamental and technical analysis because they can be analysed independently. Some of the analyst refer both of these methods to find accurate results. From stock analysis to vet stock sectors, these types of methods are used by every analyst. Thus it can be concluded that financial market is known as the most significant method in creating the best investment strategy for portfolio.
As of now, investment has become the most important decision for everyone in life. Whether someone is in his 20’s or 50’s, the necessity of having investment plans is as important like having a house for getting protective shelter. Every individual has his own aspirations and for fulfilling them he thinks of getting an appropriate investment so that in future he/she does not need to rely on anyone. It is believed by many financial analyst that those set of people who are young and dynamic are ready to take higher risk and can also contribute by investing in mutual funds. Whereas those set of people who are older take the advantage of their salaries to live rest of their lives peacefully.
For those set of people who are in their early 20’s or have graduated from college need to think of investing atleast few amount of money in mutual funds by SIP. This is due to the fact that greater the amount of returns they will get in future, the brighter will be their future. The biggest advantage to the youth will be that they can take the benefits of compound interest by just investing in those mutual funds which promise them of high growth. Moreover, these set of people who are involved in share markets and are known for investing in aggressive stocks should think of investing in the mutual fund markets.
The age group of 30s is especially for those type of people who focus mainly on their careers and think of how they can spend another (30-40 years) of life. This age might be the time for many people to achieve the heights of success. But if they think of investing in any mutual funds then it might prove to be the best way because by following this way they might climb the ladder of success.
After the age of 40, many people think of their retirement plans and start procrastinating about the future plans. It is a perfect time for the people in their 40’s to get serious about their future. Even if the person is at the mid-point of his career and wants to reach the peak point in his career then also he can invest any kind of mutual funds that suits his buying capacity.
For those set of people who are getting retired or have reached in their early 50’s then there is a chance left for them to rethink of investment and perhaps losing the hope is also not a problem. At this age people need to be more conservative about their investments and savings
By switching the investments to more stable markets and in low-earning bonds like funds it can turn out to be a good choice for the shareholders in case they don’t wish to risk all of their savings. Thus it is advisable to every shareholder to get good advice so that his money can get secured.
In the terms of finance, shorting stocks means that the sale of asset which includes securities and other financial instruments which is not owned by the seller. It consist of seller effects like the sale of borrowing the asset so that it can be transferred to the buyer. Therefore, share position remains covered at the time of its purchase by seller so that he could deliver the purchased asset to the required lender. Even the short seller can gain profit by the decline in the prices of the goods because the cost of repurchase will be estimated to be less than the proceeds received upon the initial (short) sale. It can also result in loss when the price of a shorted inflates before the repurchase.
As per the financial analyst there is no theoretical limit put on the rise in the price of an instrument. It is also observed that short sellers also support margin or collateral to cover up the losses. Moreover their inability in doing this in a timely manner also causes broker or counterparty to liquidate the position. From the outlook of financial analysts, sellers generally borrow the securities in the span of short time so that it can give push to their sales. It is observed that in some cases, the short seller must also pay fees to purchase securities and can repay the lender for some cash returns so that the lenders could receive those set of securities which are not loaned out.
This type of process is usually done with financial instruments which can be traded in public securities, futures or currency markets. The main reason is due to the liquidity and real-time price distribution feature of such financial markets and the instruments which are defined within the each class.
In other terms “going short” is also considered as the opposite of the conservative practice of “going long”. Therefore investors earn profit from the increase in the price of asset.
From the reports of newspapers it can always be noticed that the public company whose shares are traded on stock-exchange usually consist of tens, hundreds of millions of outstanding shares which are owned by several stakeholders. It also consist of individual investors, employees, institutional investors, employees, managers and executives. Thus the common thing which all of these shareholders have is an interest in attaining the substantial success of the company. Most importantly, financial analyst also believe that the share-price of company should appreciate with time and should create wealth for all the shareholders.
A public company whose shares are traded on a stock exchange generally has tens or hundreds of millions of outstanding shares that are owned by its various stakeholders – individual investors, institutional investors, employees, managers and executives. All these stakeholders have a common interest – the sustained success of the company, which should result in its share price appreciating over time and creating wealth for all its shareholders. Thus it can be concluded that the shareholders who choose the form of short selling can also be benefitted.
Brokers are known as those set of business people who arrange dealings between a buyer and seller and take the charge for commission when the deals gets executed. The role of a broker can be of a seller or buyer whenever he becomes a principal party to the deal. Unlike the role of agent who acts on behalf of the principal party, the role of broker is quite different. Small trader is yet another name given to these brokers.
Generally, the services of a broker is not limited to only an independent party but can also be used widely in different industries. The foremost responsibility of a broker is to bring sellers and buyer together because he works as the facilitator between a buyer and seller. The best example to present the work of a broker will be in the real-estate market in which his main task is to sell a property.
Brokers also provide the market information relating to prices, products and market conditions. They can work either as seller or buyer but cannot enact both of these roles. An example to support this statement will be that of a stock-broker who is known for making the sale or purchase of securities on behalf of a client. From selling of stocks, bonds and other financial service, the role of a broker is quite huge and is not limited.
Even if someone wants to sell his financial securities then taking the help of a broker can be proved to be of a greater help. The first reason behind choosing a broker is that he knows the real value of a financial asset in the markets and are known for creating strong relations with perspective customers. Very often, people chose them because they are equipped with tools and resources to create a base of buyers. Then these brokers analyse the certain amount of buyers who can support the possible acquisition. Moreover an individual producer, especially when he is new to the market cannot create the market base or fetch customers more easily as a broker does. The other fact which signifies the importance of brokers is that they charge less commission in smaller markets.
It is advisable to the shareholders to look after the necessary documents relating to the brokers profile before they hire any because only then they might get sure about promoting their business to the different set of people. Some of the brokers are specialised in different fields like real estate brokers, aircraft brokers and they do not require no formal license or training requirement.
The services offered by full service brokers include market research, investment advice, retirement planning and provide the customers with wide range of investment products. Brokerage firms usually compensate the brokers on the basis of their trading volume and on the sale of investment products. Although many number of brokers offer fee-based investment products like managed investment accounts.
Those days have gone when only the wealthy could afford a broker and get the access to stock market. The all new era of internet generated a possibility of getting discount brokers who can access the stock market. Thus through the help of brokers investors can easily trade at a lower cost.
A person who enacts the role of a facilitator between buyer and a seller is known as broker. The services offered by full broker includes market research, investment advice and retirement planning. Those set of investors who have high trading businesses can be expected to pay higher commissions for their trades. Many brokerage firms offer compensation to brokers on their services including the sale of investment accounts. Fee-based investment products like management investment accounts are also offered by brokers.
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory body which determines the working of brokers. Brokers work according to the suitable rules which specify them to give reasonable recommendation of a product to the buyer. Moreover investors are advised to choose those set of brokers who can understand the customers and value them. The broker who is able to put reasonable effort in getting the information about customer’s financial status, tax status, investment objectives and other relevant information. The standard of conducted executed by brokers differs largely from the financial advisors.
The main aim of real-estate brokers is to sell a property by determining its market value, listing and comprehend different ways of promoting the property to prospective buyers. Real-estate brokers are also liable for gaining the information related to sales consideration.
The role of broker in real-estate field is quite much larger as he need to specify the specific area of land that lies in the capacity of a buyer. In addition to it, a broker is also liable for making an initial offer, purchase agreement for buyer and tries his best to negotiate the deal at reasonable rates with the buyer.
If a buyer wishes to purchase any financial asset at a discount rate then he should get in touch with the discount broker. The main service of discount broker is to “buy” and “sell” financial products at a reduced charges in comparison to the services of full service border. Moreover discount broker do not provide any investment advice.
If someone is a novice investor then for him selecting a broker will be the chief investment decision. Moreover, the sellers should also see whether the broker has handled the transaction cases in past because an experienced broker will be of great help in making their assets sell to the buyers. The second reason to hire an experienced broker is that they know all the rules of real-estate property management. In the times of today, there is not only one type of broker. Brokers like mortgage brokers, option broker, stock broker, investment broker, joint venture broker, customs breaker, customs broker, sponsorship broker and many more. By taking the help of a broker, people have become more confident while dealing in the share markets. However, there are certain amount of risks associated with selling of shares but with the help of broker many shareholders have been able to get assurance.
In the terms of finance, margin is defined as the security that the holder needs to deposit with a counterparty which includes their brokers. In case, if shareholder borrows some cash from the counterparty for buying financial instruments or have borrowed financial instruments for selling them at short time period then there are the certainties of rising risks. Lastly, the chances of risk may also arise if the shareholder has entered into derivative contract.
Share traders generally maintain margin account with the help of broker so that it can help them in share trading. The marginal loans are determined by the broker on basis of securities owned by the trader. It is usually a right of broker to modify the percentage of the security value so that it further gives advances to the trader. The broker can also make a margin call if the available balance declines below the actual utilised amount. In case where the cash balance of margin account turns out to be negative then the amount gets owned by the broker. The account holder is able to reinvest into the shares if cash balance comes out to be positive or he can also with draw the certain amount of money and can earn interest.
The enhancement of buying power which is available to margin account holders is called leverage. The most powerful thing about leverage is that it allows a shareholder to pay less than full price for the trade. Moreover it gives them the ability to go in larger positions as compared to other funds. Leverage is always expressed in the terms of ratio such as (2:1).
Financial leverage is referred as a technique which is involved in borrowing the funds for purchasing an asset. Generally the finance provider sets a limit on how much risk can be taken by a shareholder. The finance providers also set a limit on how much leverage it can permit and they demand for the acquired asset to be provided as collateral security.
There are many reasons that support the rise of leverage in many cases. For an assumption, when a person leverages his savings for buying a home by financing a portion of the purchase price with mortgage debt. Secondly in case, when individuals leverage their exposure to financial investments by borrowing from their broker. Sometimes equity owners of large size businesses leverage their investment by borrowing the few proportion for financing their needs. Many business leverage their businesses by utilising fixed cost inputs at times when revenues are expected to be variable. It is said by many financial analyst that an increase in revenue result in a large increase in operating income. Those set of shareholders who hold hedge funds may leverage their assets by financing a specific share of the portfolio with the cash proceeds from the undersized sale of other positions.
Leverage is considered for enlarging profits when the returns yielded from the assets exceeds the cost of borrowing. But sometimes leverage can also magnify losses. When a corporation buys too much money then it might face bankruptcy or default at the time of his business going downwards. For an example, if an investor buys a stock on the margin of (50%), may lose (40%) if the stock falls by (20%).
An option is generally considered as a contract which offers the right to a buyer. But it does give the obligation to buyer to buy or sell an underlying asset or instrument which is given at a specified strike price on a specified date. The price at which a derivative can be implemented is called as strike price and it is referred as the price of derivative’s underlying security. In the put option, the strike price is determined at which the option holder can sell the underlying security.
According to some financial experts, the strike price may be in reference to the market price of the underlying security or commodity on the day an option is conceived. An option is fixed at a discount or at a premium rate. It conveys the owner of shares about the proper time of selling the shares or holding them. An options which conveys the owner about the right time to buy a specific share is referred to as call. Whereas the put option is considered as those set of shares which can be sold at a specific price.
Share issue is known as the option which is granted by the seller to a buyer and it is also considered as the part of an employee incentive scheme. Another way can be when a buyer would pay a premium to the seller for an option. When the strike price of an underlying asset is below the market price then a call option is practised. The premium is added to strike price of the asset when it is acquired by a buyer. An option expires when its expiration date gets executed without the option being exercised. The premium is considered as the income to the seller and it is accounted as the capital loss to the buyer.
With the help of counter-transaction or an options exchange, the owner of an option may be eligible to sell it to a third party in any secondary market. The difference between the market price of a stock and strike price of an option can differ and it determines the market price of an American style option. Due to numerous factors like the necessity of an option holder to sell the option before it approaches the expiration date and lack of financial resources to exercise the option can lead to the variation in actual market price of an option. The holders of options are never entitled to any of the rights linked with the underlying asset like voting rights or the right to generate income from the underlying asset like dividend.
For the past many decades options contracts have been known to the world. In the year 1973, The Chicago Board Options Exchange was created. Its administration was built through the help of standardised forms and terms which were passed through a guaranteed clearing house. The financial institution of Chicago has enhanced the two most specific activity areas like in trading and academic interest.
This has further led to the amplification of options in the times of today and all of them are produced through clearing houses which trade them to the buyers in a standardised form. Whereas the counter-options are meant to be bilateral and customised contracts which lie between a buyer and seller. Options are the constituents of extensive set of financial instruments which are known as derivative products or simply called as derivatives.
There are many forms of trading options like exchanged-traded options, stock options, stock options, stock market index options, options on future markets and bear contracts.
Exchange trade options are classified as exchange-traded derivatives. These options consist of standardized contracts and these are settled through the fulfilment which will be guaranteed by the Options Clearing Corporation (OOC). These contracts are standardized and accurate pricing models of them are also available.
Options can be traded in more than one way. The ways of trading options include exchange-traded options, stock market index options, bear contract, over the counter options and future contracts.
Exchanged traded derivatives is another name given to the exchanged traded options. Exchanged traded options consist of standardized contracts which are settled with the help of clearing house and require the fulfilment guaranteed by Options Clearing Corporations. Accurate price models are offered on these contracts because they are standardised.
Those set of options which can be sold by one party to another and offer the right to the buyer but do not obligate the person with a right to buy or sell the stock within the specified period of time. American options are the one which can be executed between the date of purchase and the expiration date of the option.
Those set of options that are not listed on an exchange but can be traded between two trade private parties. Since its terms of (OTC) options are unrestricted therefore it can be individually modified to connect with any need of business. Thus option writer is well-financed institution. Some of the most commonly used option types include interest rate options, currency cross rate options, and options on swaps.
These are those set of options which facilitate the buyer with the right to buy an underlying security at the strike price. Moreover the option writer is needed to give the underlying security to the option buyer only when the stock’s market price surpasses the strike price.
It is always believed by an option writer that the prices of underlying stock will drop or remain constant in relation to the option’s strike price until the date of option’s expiration. Thus this is how one can yield the maximum profit. As per the research analysis of many well-known financial analysts, the optimum value of profit that an option writer can earn is determined by the premium he/she received in selling the option. If the buyer’s stock rises above the strike price then the buyer might be able to acquire the stock for a low price and earn few profits by selling it at the current market price. Moreover the option buyer may lose the premium in case when the value of underlying stock falls below the strike on the date of expiration.
This is type of option which allows the option buyer the right to sell at strike price. For example, a put option believes that the market price of underlying stock will fall below the specified strike price on the specified date. The option writer’s maximum profit is achieved when his underlying stock’s price remain at the same price or closes above the specified rate. Unlike other options, a put option holder gain benefits from the decrease in underlying stock’s price below the strike price. The put option writer is obligated to earn profit when the underlying stock’s price falls below the strike price. Financial analyst calculate the put option writer’s profit by subtracting current market price along with paid premium from strike price. And then multiplying the entire value by 100.
Orders are generally considered as the instruction that a person needs while buying or selling a share like stock market, bond market and commodity market or even in crypto-currency exchange. These set of instruction are said to be simple or complicated because they can be sent to a broker or trader by market access. Thus some standard instructions are also set for such orders.
For buying or selling an asset in the financial market as per the terms and conditions specified in the instructions is known as the market order. These types of orders are used when certainty of execution is given the priority over the price of execution.
A market order is a buy or sell order to be executed immediately at current market prices. As long as there are willing sellers and buyers, market orders are filled. Market orders are therefore used when certainty of execution is a priority over price of execution. Market order is known for being the simplest of all the different order types. The most adept thing about this order is that it does not allow the prices of the commodity to change early.
It is an order which does not specify the desired price of any commodity. Moreover, it does not guarantee that whether the order will be filled or not. Limit orders are of two types like buy limit order and sell limit order.
Buy order limit- It is a particular type of instruction in which the order is entered at a price below the current market price.
Stop order- It is an order which is used for activating an execution at the time of rise in the prices due to the market level. When this limit is reached then the stop order becomes a market order. Stop order does not predict the actual price that will be received in the form of security. There are two types of orders like buy stop order and sell stop order.
These are used to limit losses on short stock positions and they are known because their value is always placed above the current market price and get filled only when the price of the commodities rises in the markets.
It is an order which is used for limiting the losses on long stock positions and are always placed below the current market price and get filled only when the prices of markets falls.
It can be concluded that financial orders are very much necessary in determining the market forces of supply and demand. Thus, through the help of these financial orders the work of shareholders have become much easier in buying or selling the financial assets. Those days have gone where an investor needed to worry about his shares when the prices of the commodity gets rises or decreases as per the market condition.
If you are a conservative investor then buying any kind of financial asset as per the guidelines specified in different types of orders can be said to be beneficial.
After the globalisation of Indian markets after 1990’s national stock markets have arisen as the chief channel for financial amalgamation of upcoming market economies and globalisation. Over the years rapid increase in the economy has also led to the increase in IT sector. The cross border of flexibility of private capital inflows because of investors want of better portfolio diversification and a drastic shift among the companies from debt to equity finance are few reasons that led to the growth of financial integration. It is also seen that financial integration can be linked with various benefits like development of markets, institutions, strategies to create the provisions for savings and economic progress.
But these linkages can also turn out to be disadvantageous as it can create various risks like contagion and disruptions of economic activities. The year of 2008 is best suitable example to support this statement when national stock markets declined abruptly due to the development of credit markets in the United States. It has been researched by many economists that it is mandatory to monitor the progress of interdependence among the financial markets due to the economy policy.
The system of financial integration works on the framework of legal agreements, institutions, formal and informal economic factors which propagate the flow of international financial capital for the purpose of initiating trade-finance and investment. In past there have been rigorous efforts to uplift the international monetary system which improved the exchange rate stability and fostered the growth in global finance.
The allocation of capital, better governance, higher investment, growth and risk sharing are major benefits of financial integration. Financial integration helps in strengthening the domestic financial sector which accounts for more efficient capital, greater investment and growth opportunities. It is also observed that financial gains can also be created among domestic financial firms because they have to compete directly with global firms and it is the reason which has led to better corporate governance.
Many well-known economists around the world believed that a nation should focus on getting broader capital base which can fuel the economic growth. Thus it is the reason that financial integration facilitates the flows of capital from developed economies to developing economies.
The big thing about the amalgamation of financial stock markets is that it has given boost to macroeconomic policies, health policies, enhanced bank regulations and strengthened the legal property rights in almost every nation. It has enabled an organised order of propagating foreign direct investment, liberalization of domestic equity capital. The effect of strong financial integration has also lead to the high capital outflows and short term capital mobility. It has given a strong base for the country like India to develop reliable currency from the outlook of domestic and international investors so that they could witness the benefits of greater liquidity, greater savings and accelerated economic growth. It is said that a country which holds unrestrained access to foreign capital markets without establishing a valuable currency can become vulnerable to hypothetical capital flights and can suffer serious economic costs.
The analysis performed for evaluating a particular trading instrument including investment sector and an entire market sector is known as stock analysis. The analysis executed by stock analyst is usually done to determine the future activity of an instrument, sector or market. The method which is adopted by investors and traders to make buying and selling decisions is called stock analysis. Investors can make an attempt to gain benefits from the financial markets by evaluating the past and current data of shares.