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  • Impact Of Union Budget On Share Market

    Impact Of Union Budget On Share Market

     

    Definition of Budget:

    “A budget is a formal statement of estimated income & expenses based on future plans & objectives. In other words, a budget is a document that management makes to estimate the revenues & expenses for an upcoming period based on their goals for the business.”

    Meaning of Budget:

    “A budget is a financial plan for a defined period, often one year. It may also include planned sales volumes & revenue, resource quantities, costs & expenses, assets, liabilities & cash flows.”

    Advantages of Budgeting

    1. Budgeting provides a systematic & disciplined approach to the solution of problems in the organization.
    2. However it helps in directing capital & other resources into the most profitable channels.
    3. Budgeting provides a valuable means of controlling income & expenditure of a business as it is a “Plan for spending”.
    4. It forces the management to study about the problems relating to the timely implementation. It generates a sense of caution & care among the line manages.
    5. Budget provides a means of controlling income & expenditure of a business. It gives a plan for spending.
    6. Budgeting helps in directing both capital & revenue resources in a profitable way.

    Responsibility can be easily fixed with the help of budgeting.

    1. Proper incentive system of wage payment can be introduced with the help of budgeting.
    2. National economy is improved by providing more employment opportunity, effective utilization of resources & avoiding wastage.
    3. A systematic & disciplined approach is followed to solve the problems in an organization through budgeters’ control.
    4. Budgeting encourage competitiveness among employees & provides incentive to those who perform efficiently.
    5. An efficient & economy in production control is achieved through budgeting.
    6. Budget provide an excellent record of organizational activities.
    7. The major strength of budgeting is that it co-ordinate activities across departments.
    8. Helps in defining strengths & weakness on which the entity can concentrate.

    Disadvantages of Budget

    1. Planning, budgeting or forecasting is not an exact science; it is uses approximations & judgement which may not by per cent accurate. At best a budget is an intimately no one knows precisely what will happen in the future.
    2. Budget can demotivate employees because of lack of participation. If the budgets are arbitrarily imposed top down, employees will not understand the reason for budgeted expenditures, & will not be committed to them.
    3. Budget can create competition for resources & politics.
    4. Budgeting exercise can be at time at very time-consuming exercise. It involves extra manpower to get the estimates as accurate as possible. Especially for a big company with various department, budgeting exercise takes a huge effort. The time consumed may be low in cases where the company uses budgeting software & the employees are well trained. If the company uses zero based budgeting technique, the time, cost & effort involved can be considerably large.
    5. Budgeting is based on a lot of assumptions in estimating the expenses & revenues. These are generally based on trend & the market scenario prevailing at the time of making the budget. Budgets can also be based on the predictions made for the coming year considering the date available at the time of budgeting.
    6. Staff may be demotivated, if the targets set are too difficult or too easy to achieve, they are made responsible for something outside their competence or does not identify themselves with targets.

    IMAPACT OF 2018 BUDGET ON SHARE MARKET

    Union Budget & stock market have a strong relation. To understand the effect of union budget on equity markets it is essential to track the policies that government proposes & its relations to each sector & major stock within that sector. 2018 Union budget is most affected the share market.

    The budget has played an important role in share market & the budget has traditionally been an important part of the financial year, with government announcing exactly what it wants to do for the next year, & how it has succeeded grandly at what it said it wanted to do last year.

    A budget is the government statement of policy for the next financial year. Budget announcement do affect the stock prices of those company who will be impacted favorably.

    Both the major indices in India has scaled record heights, the Sensex has crossed the 36000 mark whereas the nifty 11000 level. Generally, there are negative sentiment & expectations attached to the Budget this investor usually postpones buying decisions before the budgets is tabled.

    The B-Day Or Budget Day is proving to be the D-Day for a euphoric market. Jitters building up in the runup to  the budget have caused the BSE Senex lose 600 odd points from its record high of 36,443 hit.

    That’s what is giving Dalal Street all the scares. Analysts say the continuation of the ongoing bull run in the domestic stocks will depend on FIVE FACTORS in this budget.

    LTCG tax:

    Long-term capital gains tax is one think that comes to haunt the market before the Union Budget every year. But this time is different. The Sensex gained 6 per cent in January alone. Except for 2017, Sensex has never given this much return in the pre-Budget month in last one decade.

    Fear gauge India VIX, though, has spiked all through one month. Market veteran Madhusudhan Kela believes the market so far has not priced in an LTCG tax. Any change in status quo, he believes, could trigger a correction in the market.

    As per Section 10(38) of the I-T Act, gains on equity investment beyond 12 months are exempted from taxes if the securities transaction tax (STT) is paid on the sale transaction. In case of non-equity mutual fund schemes, the duration to qualify for LTCG is 36 months. The long-term capital gains tax (LCGT) in this case is 20 per cent after indexation. There are fears that either the LTCG would be levied on equity or the duration will be raised from one to two or three years.

    Fiscal deficit:

    While there are signs that the government might meet its fiscal deficit target of 3.2 per cent of FY18 due to huge disinvestment receipts and dividends, the FY19 target of 3 per cent looks tough. A fiscal deficit target above 3.2 per cent of GDP in FY19 would be a negative surprise for markets, as it would imply a slower pace of fiscal consolidation, says Nomura India. This could be the result of either higher-than-expected spending or lower-than-expected revenue, if the government goes for cuts in corporate or income-tax rates, along with excise duty cuts on petroleum products.

    Revenue & expenditure:

    It remains to be seen what the FM’s plans are for FY19: Whether the government would go for improving the quality of spending with a rise in the share of capital expenditure and a gradual moderation in revenue expenditure. Will there be doleouts with an eye on 2019 general elections? Will there be any announcement of a universal basic income transfer scheme on a pilot basis that can add to the future fiscal burden? These are the questions the market will be focusing on.

    “In the Gujarat elections, the BJP got very few votes from the hinterland. In that sense, there is a big political need to increase rural spending and in general increase government spending to keep supporting the economy. However, uncertainty around GST revenues and higher oil prices will constrain the government in terms of how much it can spend without deviating from the fiscal consolidation path,” BofA-ML said in a note.

    Bank recapitalisation: Banking stocks do have a significant say on the benchmark equity indices. The government has announced a mega recap plan worth some Rs 2.1 lakh crore. But the market did not look much enthused by the recent Rs 88,000 crore recap bond announcement. One headline risk in FY18 is the accounting treatment of the recap bonds issued to the banks, as previous indications from government officials have been that these bonds will only affect debt and not the deficit, noted Nomura India.

    Divestment programme:

    FY18 will be the first year when the government will be able to hit the divestment target. In his Budget speech on February 1 last year, Jaitley had pegged the divestment target at Rs 72,500 crore, which included Rs 46,500 crore worth of minority stake sales, Rs 15,000 crore worth of strategic sales and Rs 11,000 crore from listing of insurance companies. With total disinvestment proceeding of Rs 54,338 crore so far, the Rs 37,000 crore ONGC-HPCL deal is all set to push the divestment proceeds in FY18 to a record Rs 91,253 crore. Dalal Street veterans believe Finance Minister Arun Jaitley might raise the divestment target for FY19 by 15-20 per cent (over actual target), aggregating close to Rs 90,000 crore.

     STOCKS THAT TANKED UP TO 50% ON 2018 BUDGET PAIN:

    Finance minister Arun Jaitely Union Budget that seeks to rob Peter to pay Paul appears to have killed all the excitement on dalal street, where the benchmark Equity Indices were climbing new record highs every second day till Thursday.

    Select stocks have slumped as much as 50per cent in response to some duty rejig or other sector specific policy decisions announced in the budget.

      PC JEWELLER –

    Shares of PC Jeweller plunged over 50% in morning trade on Friday, as the broader market nosedived.

    JUST DIAL DOWN 17 PER CENT

    JAIN IRRIGATION SYSTEM DOWN 16.57 PER CEN

     

    TRIBHOVANDAS BHIMJI ZAVERI DOWN 16.11 PER CENT

    S P APPARELS 14.50 PER CENT

    DLF DOWN 14.41 PER CENT

    GENUS POWER INFRASTRUCTURE DOWN 10.87 PER CENT

     

  • WARREN BUFFETT – THE KING OF STOCK MARKET

    WARREN BUFFETT – THE KING OF STOCK MARKET

    AGE – 88 YEARS OLD

    BORN – OMAHA, NEBRASKA, U.S.

    EDUCATION – COLUMBIA BUSINESS SCHOOL (1950 – 1951)

    NET WORTH – 8430 CRORE USD

     

    Warrent Buffett is an American business magnate, investors, speaker & he is the chairman CEO & the largest shareholder of Berkshire Hathway. Warren Buffett was born 30 August,1930, in Omaha, Nebraska. Warren Buffett is an investment guru & one of the richest & most respected businessman in the world. Buffett’s grandfather also ran grocery store & Buffett’s father howard, was a local stockbroker & banker who later become Republican congressman.

    Warren Buffett known as “Oracle of Omaha”. When he was 11-year-old, Buffett already bought stock & by 16 he had amassed more than $53000 from various business ventures & investment. From a young age, Buffett was bound for success. Buffett purchased shares of CITISES SERVICES preferred for $38 apiece.

    After graduating, Buffett applied to HARVAD BUSINESS SCHOOL. But he was rejected by HARVAD BUSINESS SCHOOL. In 1951 he received his master’s degree in economics at Columbia university, where he studied under economist Benjamin Graham (the father of value) & furthered his education at the New York Institute of finance.

    He was appointed at a starting salary of 12000 a year at Benjamin Graham’s partnership in 1954. His boss was a difficult man to work with & expected strict adherence to conventional rules of investing which Buffett’s young mind questioned.

    Benjamin Graham retired & closed his partnership in 1956. By this time Buffett had a large amount of personal savings with which he opened Buffett partnership Ltd, an investment partnership in Omaha.

    He become the richest person in the world in 2008 with a total net worth estimated at $62 billion by Forbes, overtaking Bill Gates who had been the no.1 on Forbes list for the past 13 years. The very next year Gates regained the first position & Warren Buffett moved to second place.

    When asked the key to his success, Warren Buffett pointed to a stock of books & said, read 500 pages like this every day. That’s how knowledge works. It’s build’s up, like compound interest.

    On February 16,2011, Warren Buffett was awarded the highest civilian honor, “the presidential medal of freedom,” by former president Barack Obama.

    WARREN BUFFETT TIP’S

    • Never depend on single income. Make investment to create a second source.
    • Saving first, spending last.
    • Don’t buy things you don’t need.
    • Create more earning source.
    • Think long – term & be patient.
    • Do not put all eggs in one basket.
    • If the business does well, the stock eventually follows.
    • Invest yourself.
    • Our favorite holding period forever.
    • It’s far to buy a wonderful company at a fair price than a fair company at a wonderful price.

    WARREN BUFFETT QUOTES

    1. “Without passion, you don’t have energy. Without energy, you have nothing.”
    2. “The stock market is a device for transferring money from the impatient to the patient.”
    3. “Someone is setting in the shade today because someone planted a tree a long time ago.”
    4. “The difference between successful people is that really successful people say no to almost everything.”
    5. “Focus on your customer & lead your people as though their lives depended on your success.”
    6. “If you don’t find a way to make money while you sleep, you will work until you die.”
    7. “If you cannot control your emotions, you cannot control your money.”
    8. “I look for 3 things in hiring people: integrity, intelligence & a high energy level. But if you don’t have the first, the other two will kill you.”
    9. “You are your best ASSET.”
    10. “We have long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie & I continue to believe that short-term market forecast is poison & should be kept locked up in a safe place, away from children & also from grown ups who behave in the market like children.”
    11. “Risk comes from not knowing what you’re doing.”
    12. “No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
    13. “Read 500 pages every day. That’s how knowledge works. It builds up like compound interest.”
    14. “Price is what you pay. Value is what you get.”
    15. “I never invest in anything that I don’t understand.”
    16. “Failure comes from ego, greed, envy, fear, imitation. I have success not because I am smart, but because I am rational.”
    17. “The more you lean the more you earn.”
    18. “The best investment you can make, is an investment in yourself…The more you learn, the more you’ll earn.”
    19. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
    20. “I always knew I was going to be rich. I don’t think I ever doubted it for a minute.”
    21. “Time is on your side when you own shares of superior companies.”
    22. “Don’t save what is left after spending, but spend what is a left after savings.”
    23. “Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.”
    24. “Unless you can watch your stock, holding decline by 50% without becoming panic stricken, you should not be in the stock market.”
    25. “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that causes the stock to be mis appraised.”
    26. “The stock market is a no called strike game. You don’t have to swing at everything you can wait for your pitch.”
    27. “If you are not thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
    28. “Its good to learn from your mistakes. It’s better to learn from people’s mistakes.”
    29. “Wall street makes it’s money on ACTIVITY… you make your money on INACTIVITY.”
    30. “People who know the edge of their own competency are safe, and those who don’t, aren’t.”
    31. “First, many in wall street- a community in which quality control is not prized- will sell investors anything they will buy.”
    32. “I don’t try to jump over seven- foot bars; I look around for one-foot bars that I can step over.”
    33. “Never feel guilty for starting again.”
    34. “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
    35. “I mean, I can buy anything I want, basically, but I can’t buy time.”
    36. “An idiot with a plan can beat a genius without a plan.”
    37. “If you are happy every day, I think you are going to live longer.”
    38. “Don’t pass something that attractive today because you will find something way more attractive tomorrow.”
    39. “Stay away from credit cards & invest in yourself.”
    40. “In insurance, as elsewhere, the reaction of weak management to weak operations is often weak accounting.”
    41. “Don’t put all your eggs in one basket.”
    42. “I go out & do what I believe I should be doing. And I’m not influenced by what other people think.”
    43. “If you think being entrepreneur is risky, try working for someone else for 40 years & living off social security.”
    44. “I learned very early in my life that my favorite employer was myself.”
    45. “Never count on making a good sale. Have purchase price be so attractive even a mediocre sale gives good results.”
    46. “There comes a time when you ought to start doing what you want. Take a job that you love.”
    47. “I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”
    48. “Remember, money doesn’t create man, its man who creates the money.”
    49. “Predicting rain doesn’t count; building arks does.”
    50. “Success is walking from failure to failure with no loss of enthusiasm.”
    51. “Never test the depth of river with both feet.”
    52. “Successful investing takes time, discipline & patience.”
    53. “It takes twenty years to builds a reputation & five minutes to ruin it.”
    54. “Smart doesn’t always equal rational.”
    55. “What we learn from history is that people don’t learn from history.”
    56. “What the wise do in the beginning, fools do in the end.”
    57. “Charlie & I would follow a buy & hold policy even if we ran a tax-exempt institution.”
    58. “If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But , if each of us hires people who are bigger than we are, we shall become a company of gaints.”
    59. “The best thing that happens to us is when a great company gets into temporary trouble……. We want o buy them when they are on the operating table.”
    60. “The most important thing to do if you find yourself in a hole is to stop digging.”
    61. “You only find out who is swimming naked when the tide goes out.”
    62. “It is not necessary to do extraordinary things to get extraordinary results.”
    63. “Its better to hang out with people better than you.”
    64. “Without passion, you don’t have energy. Without energy, you have nothing.”
    65. “You can’t make a good deal with a bad person.”
    66. “Honesty is a very expensive gift. Don’t expect it from cheap people.”
    67. “Having money makes you rich, having time makes you wealthy.”
    68. “To change your life, you have to change your mindset.”
    69. “Forget managing the situation. Manage your mind.”

     

    GOLDEN RULES OF WARREN BUFFETT:

    RULE NUMBER 1

    Never Lose Money

    RULE NUMBER 2

    Never Forget Rule Number 1…..

  • MOST SUCCESSFUL INVESTORS

    MOST SUCCESSFUL INVESTORS

     

    The most successful investor is an individual who has achieved remarkable success in the world of investing through their exceptional knowledge, skills, and decision-making abilities. They possess a deep understanding of the financial markets, economic trends, and various investment instruments.

    This investor demonstrates a unique ability to identify lucrative investment opportunities and accurately assess their potential risks and rewards. They possess a sharp analytical mind and extensive experience, allowing them to make informed investment decisions that consistently yield impressive returns.

    What sets this investor apart is their long-term perspective and the ability to see beyond short-term market fluctuations. They have a strategic mindset and understand the importance of patience and discipline in achieving consistent growth over time.

    The most successful investor is highly adaptable and stays updated with the latest market developments and emerging trends. They possess excellent research skills and are constantly seeking new knowledge to enhance their investment strategies.

     

    RADHAKISHAN DAMANI

    BORN: BIKANER

    AGE: 61

    NETWORTH: 1,040 CRORE USD

    He entered the market at an age of 32. Radhakishan Damani is a stock market investor, stockbroker, trader, the founder & promoter of Dmart retail store in India.Radhakishan Damani is also known as“Mr. white & white” because of his simple dressing. Radhakishan Damani is a veteran stock market investor & founder of Supermarket chain Dmart. Mr. white & white  is a master in picking multibagger stock. He is famous as a man with Midas touch.

    The Badshah of Dalal Street Rakesh Jhunjhunwal calls him a mentor / guru. Rakesh Jhunjhunwala has credited Damari for guiding him in the stock market.

    His retails chain accounts for 91 stores across India & is the third biggest in the industry. Radhakishan owns 52% stocks in the parent company of Dmart called Avenue Supermarts & Bright star investment- his investment company, holds other 16% stake. Overall – Dmart’s success is focused on three things: Customers, Vendors & Employees.

    RAKESH JHUNJHUNWALA

    BORN: MUMBAI, INDIA

    AGE: 58

    EDUCATION: UNIVERSITY OF MUMBAI, SYDENHAM COLLEGE OF COMMERCE & ECONOMICS

    NETWORTH: 240 CRORE USD

    Rakesh jhunjhunwala entered the Indian market in 1985. Rakesh jhunjhunwala also known as “India’s Warren Buffett” & “The Big Bull” is one of the most renowned & successful Stock Market investors in India.His father was also interested in stocks.

    He is a Chartered Accountant. He manages his own portfolio as a partner in his asset management firm, RARE Enterprises. The name RARE is derived from the initial of his name & his wife’s name.

    He is also the chairman of APTECH LIMITED & HUNGAMA DIGITAL MEDIA ENTERAINMENT PVT LTD. Rakesh jhunjhunwala follows the ideology of warren Buffett & believes in long term investment. He strongly advocates the growth of India & its rising company. Mr. Rakesh Jhunjhunwala is also confident in learning from mistakes. He often says- “Mistakes are your learning friends. The idea is to keep these mistakes small.”   

    https://www.youtube.com/watch?v=QGep7gSWRNI&t=26s

    CHANDRAKANT SAMPT

             “Markets & Mistakes are the best education. The convential education just close the mind.”

    Chandrakant Sampt was known to many as the Warren Buffett of India & was regarded as a veteran stock market investor. The 82-year-old investor lead an active yet simple life that included daily jugging & yoga exercises. Sampt hardly looked like one of the most successful investors in the country. He believed in investing in companies with strong cash flow & predictable business. He made a killing in the 1970’s with the introduction of the Foreign Exchange Regulation Act Or FERA.

    He began accumulating shares of blue chip like Hindustan Unilever (then Hindustan Lever), Procter & Gamble, (Initially Richardson Hindustan), Gillette (then Indian Shaving Products) & Colgate, from the time they went public.

    “His greatest contribution to the Indian market was that he shared his immense knowledge about investing by mentoring many as prising investors”, Ramesh Damani.

    “The one man who has had a lasting impression on him is none other than the greatest management theorist of all time”, Peter F. Drucker.

    His investment philosophy; identify great businesses & let the power of compounding to the rest. Invest in a business you understand the company should have either zero or very little debt, the share should be available at a P/E ratio of 13 to 14 times the current year’s earnings & lastly, it should be available between 3.5% & 4%, “it is that simple!” he says.

    RAMESH DAMANI

    AGE: 61

    EDUCATION: HR COLLEGE, MUMBAI (Bachelor’s degree in commerce) CALIFORNIA STATE UNIVERSITY (Master’s Degree in Business Administration)

    OCCUPATION: FOUNDER OF RAMESH S. DAMANI FINANCE PVT LTD.

    Ramesh Damani, the investment guru & one of the most successful stock market investors in India, started his journey to riches in 1990’s when Sensex was 600 points. He holds a bachelor’s degree in commerce from HR college, Mumbai & master’s degree in business Administration from California state university.

    Investor Ramesh Damani has been known for his investment in both unlisted & listed companies. Damani is popular for his high- quality value picks, that can be retained in the portfolio for long periods of time. He follows the Warren Buffett model of investing, which favors companies with strong management credentials & processes.

    Ramesh Damani works at privately owned Ramesh S. Damani finance PVT Ltd.

    Ramesh Damani’s first famous investment was ‘Infosys’. Coming from a techie background in the US, he knew the Infosys has great future potentials. So, when Infosys become public in 1993, he invested Rs.10 lakhs in it. By 1999, this investment has given him more than 100 times return.

                           “I learned that just become a stock double, it is not a reason to sell it.”

    PORINJU VELIYATH                  

     BORN: 6 JUNE,1962, CHALAKUDY

    AGE: 56

    EDUCATION: BACHELOR OF LAWS

    Porinju Veliyath is one of the most successful stock market investors of India. He has become one of the most respected value stock picker of India. Porinju Veliyath is an Indian investor & fund manager.  He manage his own portfolio & the portfolios of investors in his fund management firm Equity Intelligence been called a Small- Cap Czar by economic times. “I buy lesser known, high quality businesses to derive maximum portfolio value. I didn’t shy away from smaller companies like other ‘knowledgeable people’ do. And I don’t buy a lot of great companies with clean balance sheet, honest management & clear business visibility. If you invest in such companies even bank FDs would beat your portfolio returns”, Porinju Veliyath.

    PORINJU  VELIYATH  INVESTMENT  STYLE

    1. Identify & invest in future muilti baggers.
    2. Make strategy when to exit from stock.
    3. Buy lesser known, high quality businesses to derive maximum portfolio value.
    4. Invest in companies with clean balance sheet, honest management & clear business visibility.

     

    Also Read | Best Stocks For Long Term Investment

  • THE STORY OF SCAM

    THE STORY OF SCAM

    Harshad Mehta scam or 1992 securities scam is one of the biggest scams in the history of Indian stock market.

    Harshad Mehta the Baap of bank frauds before Nirav Modi.

    Harshad Mehta was an Indian stock broker. Harshad Mehta was known as Big Bull of Dalal street. He was born on 29th of July 1954 in a poor family Rajkot District in Gujarat. Harshad Mehta was the son of a peon. Mehta spent his early childhood in Kandivali, Mumbai, whilst his father ran a small business. However, the family had to shift to Raipur in Chhattisgarh for medical reason.

    Mehta completed his schooling in Raipur but never showed much promise. He moved back to Mumbai alone after completing school, completed his B.com from Lajpat Rai college & took up odd jobs from selling hosiery to sorting diamonds for the next eight years.

    While working as sales person in New India Assurance Company Ltd. He developed the interest in share market & hence after quitting his job in early 1980’s. He joined the stock broker B. Ambalal. Later 1981 he worked as sub-broker to stock broker J.L. Shah & Nandalal Seth. After gaining ample of experience, in 1984 he with his brother, started his own firm named as Grow More Research & Asset Management. Later, he become the member of BOMBAY STOCK EXCHANGE as a broker.

    In 1986, he started trading actively. By early 1990, he become a famous stock broker.

    The name Harshad Mehta was in the focus of public attention in the year 1992 with a number of financial crimes charged on him. The securities scam of 1991-92 refers to a diversion of bank funds worth Rs.3500/- crore to a group of stock brokers, led by Harshad Mehta. These funds were then put into the stock market selectively causing it to surge to over 4500 points.

    On April 23, 1992, journalist SUCHETRA DALAL exposed Mehta’s scam. She is columnist in times of India.

    Mehta’s favorite stocks included Associated Cement Company (ACC), Apollo Tyres, Reliance, Hero Honda, tata Iron & steel co (TISCO), BPL, Sterlite, & Videocon, to name a few. The ACC, India’s foremost cement firm, was menta’s favorite. He pumped money into its shares so aggressively that its stocks rose from Rs.200 a share to Rs.9000 a share in three years …. a 4400 percent rise.

     

    Harshad Mehta mainly used these instruments in scam:

    Ready Forward Deal (RF Deal):

    Harshad Mehta used technique of the RF Deal or Ready Forward Deal in scam. Ready Forward deal was the short-term loan instruments for bank. To know what RF deal is first we will see what government securities are.

    Basically, Government Issue’s securities to cover its expenses of various project. They are called as Government Securities. Bond is an example of government securities. In bond, the government raises the fund to cover its expenses, and in return, pay the interest to investors who have invested in these bonds. It was mandatory for all banks to invest in this government securities in those days.

    In 1990’s, if any bank was in short of funds (money) then to generate funds, it used to sell its bond or securities to other bank and in return after some days would pay some interest with capital to regain its bond. I will explain this to you with a simple example.

    If in case we need urgent money then we go to our nearby jeweler. We keep our jewelry as a collateral to him and take the short-term loan from him. After some days, we return the money to jeweler with the decided interest and then he returns our jewelry back to us. Same was the case with banks. In Ready Forward deal, one bank would give the short-term loan to other bank and keep government bonds of that bank as collateral.

    In ready forward deal brokers used to work as mediators between two banks. Brokers work was to find the buyers for banks, willing to sell their securities or bonds and vice-versa find sellers for the banks which are ready to buy the securities. Harshad Mehta was the broker, and used to work as mediator between two banks.

    IMPACT OF SCAM ON MARKET

    1. Sensex fell from 4500 to 2500 losing 1,00,000 crores in market capitalization.
    2. The liberalization policies were put on hold by the government.
    3. Inability of Indian companies to raise capital in worlds markets.
    4. SEBI, the securities market regulator postponed sanctioning of private sector mutual funds.

     

     

  • CURRENCY MARKET

    CURRENCY MARKET

    currency-market

    The currency market includes the Foreign Currency Market & the Euro Currency Market. Various countries’ currencies are traded in Currency Market. The Foreign Currency Market is virtual. There is no one Central physical location that is the Foreign Currency Market. The Foreign Exchange Market (forex, fx or currency market) is a global decentralized or over the counter (OTC) market for the trading of currencies. This market determines the Foreign exchange rate.

    It includes all aspects of buying, selling & exchanging currencies at current or determined prices. In terms of trading volume, it is by for the largest market in the world, followed by the credit market.

    Trading on Foreign Exchange Market establishes rates of exchange for currency exchange rates are constantly fluctuating on the forex market. As demand rises & falls for particular currencies, their exchange rate adjust accordingly. A rate of exchange for currencies is the ratio at which one currency is exchanged for another.

    Future trading happens in currency market. Currency options have been started in USDINR. Currency market trading is conducted on two exchanges viz MCX-SX (multi commodity exchange) & NSE (National Stock Exchange). We an do trading in four important pairs in India USDINR, EURINR, GBPINR & JPYINR. Daily turnover of currency market is more than 10,000/-cr. Market timing for this segment is Monday to Friday from 9am to 5pm.

     

    Symbol Rate Lot Size Margin

    3% (0.03)
    USDINR 65 1000 1950Rs.
    EURINR 75 1000 2250Rs.
    GBPINR 80 1000 2400Rs.
    JPYINR 65 1000 1950Rs.

     

    USDINR is known as pair currency, in pair currency first factor is known as base currency & the second is known as term currency. We pay term currency & buy or sell base currency. We require very less margin in this & if we get 10ps movement also we get Rs.100 profit & if it raises by Rs.1 then the profit is 1000/-. In India USDINR has major volume.

    ADVANTAGES OF CURRENCY MARKET 

    1.  24 HOUR OPEN MARKET:

                                                 The foreign market is worldwide. There is no waiting for the everyday opening bell. Trading starts when the markets open in Australia (Sudney session) on Sunday evening & ends after markets close in NEW YORK on Friday.

    This is fabulous for those who would like to trade on a part- time basis because you can choose your own time for trading: morning, afternoon, night, during breakfast, lunch, dinner or in your sleep. An individual can view the current market trend & get updated anytime.

    2.  TRANSACTION COSTS ARE LOW:

                                           The cost of a transaction is typically built into the price in forex. It’s called the spread. The spread is the difference between the buying & selling price. The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market condition. For larger transaction, the spread would be is low as 0.7%. Of course this depends on your leverage.

    3.  PROFIT POTENTIAL FROM BOTH RISING & FALLING MARKET:

    The foreign market has no restrictions on trading direction. That means, if you think a currency pair is going to increase in value, then you can buy it or go long. In the same way if you think it could decrease in values, then you can sell it or go short.

    In either case, if your trade goes right then you make profit.

    4.  VERY HIGH LIQUIDITY:

    Because the size of the foreign market is so large, it is extremely liquid in nature. It means that under the normal market condition you can insanely buy & sell currencies as always there will be someone in the market willing to accept the other side of your trade.

    Liquidity is the ability of an asset to be converted into cash quickly & without any price discount. In forex, this means we can move large amounts of money into & out of foreign currency with minimal price movement.

    5.  NO COMMISSION:

    No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail broker are compensated for their services through something called the “Bid / Ask Spread”.

    6.  INDIVIDUAL CONTROL:

    One of the main & fundamental advantages of having a career in foreign trading would be that the individual himself has complete control with respect to making a trade.

    The individual who is involved in the foreign trading business always has the final decision in their hand whether they would like to enter in making trade & how much risk the trader is willing to take with respect to earning his money.

    DISADVANTAGES OF CURRENCY MARKET

    1.  HIGH VOLATILITY:

                                    The high volatility characteristic of the forex trading can either be an advantages or disadvantages.

    The changes in the global politics & economy drastically changes the forecast & diagram about the forex market thus it makes risk & invest money.

    It can cause a huge loss to the investors if the market goes down hill & when a loss is incurred a huge amount of money will go as a loss.

    2.  LOW TRANSPARENCY:

    This is one of the biggest disadvantages of foreign exchange market. Due to the decentralized & de- regularized nature of the foreign exchange market, it is dominated by brokers. And you actually have to trade against professionals.

    A trader might not have any control over how his trade order gets fulfilled, but you may not get the best price or may get limited views on trading quotes as furnished be your selected broker.

    3.  NO CENTRALIZED EXCHANGE:

    Unlike stocks or futures the spot forex market does not have any centralized exchange or clearinghouse. Alternatively, each broker acts as its own exchange & the broker effectively becomes the market maker.

    When dealing reputed brokers in well regulated countries these differences will be small but you need to be well aware of this fact especially if your charting data provider is not the same as your broker, as this may lead to inconsistencies between the planned & actual execution of trader.

    4.  RISK FACTOR:

    There is a risk factor involved in forex trading market. There is a high leverage which results in higher risk involved.

    There is uncertainty of the price & the rate of the currency which ultimately give higher profit or a huge loss so one has to be very focused & knowledgeable about the foreign exchange market where future forecasting can be accurate & profitable.

    There are 10 major reason why the currency market is a great place to trade:

    1. You can trade to any style – strategies can be built on five minute charts, hourly charts, daily charts, or even weekly charts.
    2. There is massive amount of information – charts, real – time news top level research – all available for free.
    3. All key information is public & disseminated instantly.
    4. You can collect interest on trades on a daily or even hourly basis.
    5. Lot size can be customized, meaning that you can trade with as little as $500 dollars at nearly the some execution costs as account that trade $500 million.
    6. Customizable leverage allows you to be a conservative or as aggressive as you like (cash on cash or 100:1 margin).
    7. No commission means that every win or loss is clearly accounted for in the P & L.
    8. You can trade 24 hours a day with ample liquidity ($20 million up).
    9. There is no discrimination between going short or long (no upstroke rules).
    10. You can’t lose more capital than you put (automatic margin call).

     

    Also Read | Risk Reward Ratio in Stock Market

     

  • TECHNICAL ANALYSIS

    TECHNICAL ANALYSIS

    Technical analysis is the forecasting of future financial price movement based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute prediction about the future. Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.

    Long-Term-View

     

    Short-Term-View

    Technical analysis is a study of a particular script by historic Rate, volume & quantity. By studying technical analysis we can predict the price movement in market & a particular share. By studying charts we can easily understand the price movement happened in history & we can understand the trend in market. Share price movement at what price the share will move when will it move and when will it fall can be studies through chart analysis. Therefore, chart is the foundation of this market & it will always be there.

              TREND:

    1. While trading in stock market understanding trend through technical analysis is important.
    2. Trend is a way or a direction which helps in change of rate of shares.
    3. There are 3 important parts of trend
    4. UP trend
    5. DOWN trend
    6. SIDEWAYS trend

    a.  UP TREND:

    • If a particular share is on the verge to go up then it is known as up trend.
    • There is huge volume build up in starting. So everyone starts buying so many times scripts intends to have upper circuit.

    In this trend, script moves higher high means its beats last high price & higher low means it breaks the low of last low.

    b.  DOWN TREND:

    • If the price of the a particular script goes down day by day then its called as down trend.
    • There is huge selling volume in done trend.
    • Lot of traders do short selling in this trend so there are chances of lower circuit.
    • In this trend scripts starts making lower rate of high & lower low means last low rate less low.

    c.   SIDE WAYS TREND:

    • Investors get bored in this trend.
    • The stock way is not clear in this trend.
    • Volume during sideways market is very less.
    • Intraday traders get very less chance to participate there are more possibilities of Stoploss to hit.

    VOLUME:

    • Volume means in a particular time how much buy-sell happened which produced turnover.
    • Volume means number of traded quantity of shares in specified time.
    • In share market more volume means the stock is more active & liquid.
    • Understanding volume is very important in technical analysis.
    • By seeing volume we can easily understand the market trend in advance.
    • To see whether the volume is up or down you can see those details at the downside of the chart which is started as volume bars.
    • Volume gives signal before the rate, this is the reason that volume plays a very important role in technical analysis.
    • In uptrend is the volume starts drying then the understanding become that it is end of uptrend.
    • In downtrend is the volume starts drying then the understanding becomes that it is end of downtrend.

    SUPPORT:

    • Support means, at what rate we can place an idea that the rate will not go down below this rate & there will be an upside from this rate, this particular part is known as support.
    • You can draw a support line by joining support point join.
    • In support line if we get maximum support points the line becomes stronger.
    • At support point huge quantity of shares buying happens & rate starts increasing.
    • But if rate falls below support line then the price starts decreasing & then a new support is formed.
    • That’s why its suggested that if support is breached then we have to short sell & if rate is above support line then we have to place stop loss.

    RESISTANCE:

    • Resistance means its that rate where we feel that price will not move above this point & it will fall further this point is known as resistance.
    • We can join any 2 Resistance Points & draw Resistance line.
    • In resistance line more resistance points means the resistance line becomes stronger.
    • Huge selling comes is the rate of stock falls below the resistance point & price starts decreasing.
    • But is in situation the rate breaks resistance point & goes up, then the rate starts increasing & new resistance point happens.
    • Therefore, if resistance line if breached you have to buy & if you have to keep a stop loss below resistance line.

     

    INDICATOR:

    1.MOVING AVERAGES:

    • Moving average is the value derived from the particular closing rate for that particular time frame.
    • Example if we are discussing on the moving average of 10 days then price is the average of this 10 days.
    • Thus, we derive the average price & join points & prepare average lines.
    • Now let’s draw moving average lines practically.

    a.   SHORT TERM TREND:

    • To understand Short term trend we need to understand 10 to 20 days moving average.
    • Therefore, is you need to take position for 1-2 days then we need to check moving averages of 10-20 days.
    • If price is above moving average of 10 days then it’s a buy & if it is below then it we have to place stop loss.
    • Lets see example on chart.

    b.  MIDDLE TERM TREND:

    • To check middle term trend we study 50 days moving average.
    • So if you need to buy a particular shares for 5-6 months then we use 50 days moving average.
    • If price is above moving average of 50 days then it’s a buy & if it is below then it we have to place stop loss.
    • Similarly if the price is below 50 days moving average then we need to short sell & above the moving average should be our stop loss.

    c.   LONG TERM TREND:

    • To check long term trend we study 100 days moving average.
    • If we need to invest for one year or more than that then we need to study 100 days moving average.
    • If the rate is above 100 days moving average then we can buy & below 100 days moving average then we need to put stop loss order or we can create a short sell position.

    MACD:

    • MACD is an acronym for Moving Average Convergence Divergence.
    • MACD is created by Gerald Apple in the late 1970’s.
    • This tool is used to identify moving averages that are indicating a new trend, whether its bullish or bearish.
    • With an MACD chart, you will usually see three numbers that are used for its setting.
    • The first is the number of periods that is used to calculate the faster moving average.
    • The second is the number of periods that is used in the slower moving average.
    • And the third is the number of bars that is used to calculate the moving average of the difference between the faster & slower moving average.
    • Red line is slow moving average & Blue line is fast moving average.
    • Blue is a MACD line & Red is a SIGNAL line; vertical line is MACD HISTOGRAM.
    • Divergence occurs when the moving averages move away from each other. This is called divergence because the faster moving average is “diverging” or moving away from the slower moving average.
    • Convergence occurs when the moving averages move towards each other. This is called convergence because the faster moving average is “converging” or getting closer to the slower moving average.
    • CALCULATION:
    • MACD = (12day EMA – 26day EMA)
    • SIGNAL = 9 days EMA of MACD line
    • HISTOGRAM = MACD line – SIGNAL line
    • If blue line & red line cross each other above the zero line it’s generate selling call & if blue line or red line cross each other below the zero line that mean’s this indicator show buying call.

     

    RSI:

    • Relative Strength Index, or RAI is a popular indicator developed by a technical analyst named Welles Wilder.
    • RSI is similar to the Stochastic in that it identifies overbought & oversold conditions in the market.
    • It is also scaled from 0 to 100.
    • Typically, reading below 30 indicate oversold market conditions.
    • Readings over 70 indicate overbought conditions.
    • In RSI, line below 50 indicate down trend & line over 50 indicate up trend.
    • If RSI line moves downword after crossing or touching 70 then it indicates profit booking time.

    TYPES OF CHARTS:

    a.  LINE CHART:

    • Line chart is a simple methodology of technical analysis.
    • Depending upon time & price line is drawn on the chart.
    • Line chart will only tell us at what the rate was & we could not see open, close high & low of a particular share.

    b.  BAR CHARTS:

    • Bar chart is very famous in Technical Analysis.
    • We get more detailed information in Bar Chart then line chart.
    • We understand time frame, open, close, high & low in bar charts.
    • Horizontal line on left indicates open & horizontal line on the right indicates close.
    • Upper point of the straight line indicates high & lower point of the straight line indicates low.

     

    c.   CANDLESTICK CHART:

    • Candlestick chart plays an very important role in technical analysis. Maximum countries in the world use candlestick chart for studying technical analysis.
    • The invention of this chart was done in JAPAN therefore it is also known as JAPANESE CANDLESTICK CHARTS.
    • This chart is denoted by various colors.
    • The day when the close rate of a particular script is low then the open rate then it is displayed by red color.
    • The day when the close rate of a particular script is high then the open rate then it is displayed by green color.
    • In candle stick chart above stick shows high & below stick shows us low.

     

    • Now we will take a small test on how candle stick is formed.
    • We will share a data with you & you have to draw a candle & show whether it is bullish or bearish.
    • Lets note the procedure to draw the candle first.

    Step 1 -> Check open rate first & draw a horizontal line.

    Step 2 -> Now see the close rate & if close is above then draw horizontal line above the open line & if close is less then open then draw horizontal line below open line.

    Step 3 -> Get the candle body ready.

    Step 4 -> Is candle bullish (Green) or bearish (Red) write it down.

    Step 5 -> If it has shown high then draw stick of high & if it has shown low then draw stick of low.

     

    • This way we can understand how the candle is down which is useful to study chart.

     

     

     

  • Top #5 best books for Stock Market

    Top #5 best books for Stock Market

    Importance of Reading Best Books on Stock Market:

    Do you have interest in stock market? Are you the one who is always ken to know the market movements? If yes, we have got the list of best stock market books for you. These books will help you enhance your wisdom on investments and savings. It will also enhance your knowledge on investing in the stock market. According to a survey you will be surprised to know that there are more than 85,000 books on stock market.  We have tried our best to find out the better one for you among all.  It is said that one should start investing early, but while it is important to invest early, it is also important to invest wisely. It is really very important to understand the basics of stock market before investing in it otherwise it can take you to big loss. This book will give you good investing skills and can save you to face big loss.

    1. The Intelligent Investor by Benjamin Graham

    Amazon Buy Link: https://amzn.to/2mW3RQI

    The Intelligent Investor is based on value investing, an investment approach Graham began teaching at Columbia Business School in 1928.The Intelligent Investor also marks a significant deviation to stock selection from Graham’s earlier works, such as Security Analysis.

    Since this book was published in 1949 Graham revised it several times, most recently in 1971–72. This was published in 1973 as the “Fourth Revised Edition”, and it included a preface and appendices by Warren Buffett.

    Graham died in 1976. Commentaries and new footnotes were added to the fourth edition by Jason Zweig, and this new revision was published in 2003.

    * The Intelligent Investor (Re-issue of the 1949 edition) by Benjamin Graham. Collins, 2005, 269 pages.

    * The Intelligent Investor (Revised 1973 edition) by Benjamin Graham and Jason Zweig. Harper Business Essentials, 2003, 640 pages.

    It is a widely acclaimed book by Benjamin Graham on value investing. The basic aims of this book is to prevent potential investors from substantial errors and also teaches them strategies to achieve long-term investment goals. In the book, Graham has explained various principles and strategies for investing safely and successfully without taking bigger risks. Modern-day investors still continue to use his proven and well-executed techniques for value investment. The current edition highlights some of the important concepts that are useful for latest financial orders and plans. Keeping Graham’s unique text in original form, the book focuses on major principles that can be applied in day-to-day life. All the concepts and principles are explained with the help of examples for better clarity and understanding of the financial world.

    Over the years, market developments have proven the wisdom of Graham’s strategies. While preserving the integrity of Graham’s original text, this revised edition includes updated commentary by noted financial journalist Jason Zweig, whose perspective incorporates the realities of today’s market, draws parallels between Graham’s examples and today’s financial headlines, and gives readers a more thorough understanding of how to apply Graham’s principles.

    The Intelligent Investor is the most important book you will ever read on how to reach your financial goals.

    https://www.youtube.com/watch?v=jL9BA38Wr78

    2. The Dhandho Investor by  Mohnish Pabrai

    Amazon Buy Link: https://amzn.to/2OuWImW

    In a straightforward and accessible manner, The Dhandho Investor lays out the powerful framework of value investing. Written with the intelligent individual investor in mind, this comprehensive guide distills the Dhandho capital allocation framework of the business savvy Patels from India and presents how they can be applied successfully to the stock market. The Dhandho method expands on the groundbreaking principles of value investing expounded by Benjamin Graham, Warren Buffett, and Charlie Munger. Readers will be introduced to important value investing concepts such as “Heads, I win! Tails, I don’t lose that much! ” “Few Bets, Big Bets, Infrequent Bets,” Abhimanyu’s dilemma, and a detailed treatise on using the Kelly Formula to invest in undervalued stocks. Using a light, entertaining style, Pabrai lays out the Dhandho framework in an easy-to-use format. Any investor who adopts the framework is bound to improve on results and soundly beat the markets and most professionals.

    3. The Essays of Warren Buffett by Lawrence A. Cunningham & Warren E. Buffett

    Amazon Buy Link: https://amzn.to/2mUPzzA

    Buffett’s essays include discussions on corporate governance, finance, investing, alternatives to common stock, mergers and acquisitions, accounting and valuation, accounting policy, and tax matters. Buffett outlines his basic business principles, and as the steward of Berkshire Hathaway Inc., informs the shareholders of the company that their mutual interests are aligned. He has a philosophy of bringing in talented managers at portfolio companies and leaving them alone. He advocates purchasing shares of businesses at times when these stocks are trading at a discount from their inherent value, but he opposes following investing trends.

    This is one of the most popular books on Warren Buffett classic investing strategy. The book explains his way of investing, his strategies, etc. Moreover, the book is written is simple and easy to understand language. If you want to be successful like Buffett, you must read this book and try follow the same. It will give you all the necessary aspects to achieve similar success. So start apply the Buffett principles to your portfolio.

    With the classic Warren Buffett investment strategies, the book found its way in the list of the 5 must read books for the stock market investors.

    4. One Up On The Wall Street by Peter Lynch

    Amazon Buy Link: https://amzn.to/2Kau1bv

    More than one million copies have been sold of this seminal book on investing in which legendary mutual-fund manager Peter Lynch explains the advantages that average investors have over professionals and how they can use these advantages to achieve financial success.

    Peter Lynch is one of the most successful fund managers with an average annual return of 30% on his portfolio for a period of 13 years. (A great record for a mutual fund manager).

    This wonderful book explains all the important basics that a beginner should know before investing. From preparing to invest, how, when, whys to the long-term investment approach, everything is covered in this book.

    This book has a description of the 6 different types of stocks in the market and how to approach them.

    5. Thinking, Fast and Slow by Daniel Kahneman

    Amazon Buy Link: https://amzn.to/2mTsf5t

    According to Daniel Two systems drive the way we think and make choices, System One is fast, intuitive, and emotional; System Two is slower, more deliberative, and more logical. Examining how both systems function within the mind, Kahneman exposes the extraordinary capabilities as well as the biases of fast thinking and the pervasive influence of intuitive impressions on our thoughts and our choices. Engaging the reader in a lively conversation about how we think, he shows where we can trust our intuitions and how we can tap into the benefits of slow thinking, contrasting the two-system view of the mind with the standard model of the rational economic agent.

  • FUTURE MARKET

    FUTURE MARKET

    DEFINITION:-

    “ Market in which participants can buy & sell commodities & their future delivery contracts. A future market provides a medium for the complementary activities of hedging & speculation, necessary for damping wild fluctuations in the prices caused by gluts & shortages.”

    Future markets are places (exchange) to buy & sell futures contract. There are several futures exchanges. Common ones include The New York Mercantile Exchange, The Chicago board of trade, The Chicago Mercantile Exchange, The Chicago Board of Options Exchange, The Chicago climate Future Exchange, The Kansas city Board of trade & The Minneapolis Grain Exchange.

    A future contract is a financial contract giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time. The assets often underlying futures include commodities, stocks & bonds. Grain, precious metals, electricity, oil, orange juice & natural gas are traditional examples of commodities, but foreign currencies, emissions credits, bondwidth & certain financial instruments are also part of to day’s commodity markets.

    Futures exchanges do not set the prices of futures contracts or their underlying traded commodities. Rather, supply & demand determines the prices. But two things in particular ensure the stability & efficiency of futures markets: Standardized contract & the presence of clearing members.

    Standardized contracts mean that every futures contract specifies the underlying commodity quality, quantity & delivery so that the prices mean the same thing to everyone in the market.

    Clearing members manage the payments between buyers & seller. They are usually large banks & financial services companies. Clearing member guarantee each trade & thus require traders to make good- faith deposits (called margins) in order to ensure that the trader has sufficient funds to handle potential losses & will not default on the trade. The risk borne by clearing members lends further support to the stability of further markets.

    ADVANTAGES:-

    1. The commission charges for future trading are relatively small as compared to other type of investment.
    2. Futures contracts are highly leveraged financial instruments which permit achieving greater gains using a limited amount of invested funds.
    3. It is possible to open short as well as long positions. Position can be reversed easily.
    4. Lead to high liquidity.

    DISADVANTAGES:-

    1. Leverage can make trading in futures contracts highly risky for a particular strategy.
    2. Futures contract is standardized product & written for fixed amounts & terms.
    3. Lower commission costs can encourage to trader to take additional trades & lead to over trading.
    4. It offers only a partial hedge.
    5. It is subject to basis risk which is associated with imperfect hedging using future.

    THERE ARE TWO KINDS OF PARTICIPANTS IN FUTURE MARKETS:

    1. HEDGERS
    2. SPECULATORS

    1.HEDGERS

    Farmers, manufactures, importers & exporters can all be hedgers. Hedging is done to manage price risk. Hedgers wish to protect themselves from unfavorable price movement by for going a profit if the prices moves in their favor. There are different reasons why hedging might be undertaken. A wheat farmer can hedge against a possible price decline in the future & on the other hand cookie maker can hedge against an increase in the price of wheat in the future. A lender can hedge against a possible decline in the interest rate, whereas a borrower can hedge against a possible increase in the interest rate. To hedge, you either have the underlying commodity or you require the underlying commodity at some point in the future.

    Eg.

     

    2) SPECULATORS

    The other part of futures market is made of speculators. They provide liquidity to the market. If a farmer wants to short sell a contract for 5,000 bushels of wheat expiring in 3 months it is highly unlikely that he will immediately find another consumer who wants to long buy a similar amount of wheat at the same time. The speculators, although they do not have any interest in the underlying asset or commodity, still buy the contract looking to profit through ideal market timings. This helps the entire system by bringing in much needed liquidity.

    Future markets are standardized contracts between buyer & sellers. In this all terms & conditions are same for a buyer & seller. In this contract, margin & lot size have been already decided. We only have to decide how much lot (quantity) & at what rate (price) we have to buy. In this there are 3 contracts available to trade. Last Thursday of the month is the expiry of that month of contract.

     

                 Contract               Expiry
    Near month contract Last Thursday ex.24Nov.2016
    Middle month contract Last Thursday ex.29Nov.2016
    Far month contract Last Thursday ex.25Nov.2017

     

    Eg:

    To trade in future market you need 10 to 20% margin of the contract value.

    Contract value = CMP * Lot Size

    SBIN CMP = 250

    Lot size = 3000

    Contract value = 250*3000

    10% margin      = 75000/-

    If we buy SBIN @250

    Sell SBIN @255

    Profit per share = 5Rs.

    Lot size            = 3000

    Total profit     = 15000/-

    Means we pay a margin of 75000 & do a turnover of 75000 & we get benefited of Rs.15000/-. We earned 20% profit on the margin used.

     

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