Fundamental analysis is a method used to evaluate the intrinsic value of a financial asset, such as a stock, bond, or commodity. It involves analyzing various qualitative and quantitative factors to assess the financial health, performance, and future prospects of a company or asset. The goal of fundamental analysis is to determine whether an asset is overvalued, undervalued, or fairly valued in the market.
Fundamental analysis involves studying a company’s financial statements, such as its balance sheet, income statement, and cash flow statement, to understand its revenue, expenses, profitability, and cash flow. It also considers other relevant factors, such as the company’s industry dynamics, competitive position, management team, and macroeconomic trends.
Key elements of fundamental analysis include:
1. Financial Ratios:
Analysts use financial ratios, such as price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, return on equity (ROE), and debt-to-equity ratio, to assess a company’s financial performance, profitability, and leverage.
2. Revenue and Earnings Growth:
Analysts evaluate a company’s historical and projected revenue and earnings growth rates to gauge its growth potential and future profitability.
3. Competitive Advantage:
Fundamental analysis examines a company’s competitive position, its market share, and the strength of its products or services compared to competitors. This analysis helps determine whether the company has a sustainable competitive advantage that can lead to long-term success.
4. Industry and Market Analysis:
Understanding the dynamics and trends of the industry in which a company operates is crucial. Factors such as market size, competitive landscape, regulatory environment, and technological advancements can impact a company’s prospects and profitability.
5. Management Evaluation:
The management team plays a vital role in a company’s success. Analysts assess the track record, experience, and strategic decisions made by the management team to evaluate their ability to drive growth and create shareholder value.
6. Macroeconomic Factors:
Fundamental analysis takes into account broader macroeconomic factors, such as interest rates, inflation, GDP growth, and government policies, as they can influence the overall business environment and impact a company’s performance.
By conducting thorough fundamental analysis, investors aim to make informed investment decisions. They assess whether a company’s current stock price accurately reflects its intrinsic value, identifying opportunities for potential undervalued investments or identifying overvalued assets that may be ripe for selling or shorting.
Fundamental analysis is widely used by investors, portfolio managers, and financial analysts to assess the fundamental strengths and weaknesses of companies and assets, enabling them to make informed investment choices based on the company’s underlying fundamentals.
A circuit breaker is a mechanism used in the stock market to prevent large, sudden price declines or increases. It is designed to give investors time to assess market conditions, reduce panic selling, and provide stability to the market.
Circuit breakers are triggered when the stock market experiences sharp price movements within a short period of time. The circuit breaker system is designed to halt trading temporarily to allow investors to take stock of the situation, assess market conditions, and reposition themselves accordingly. This mechanism is put in place to prevent large, sudden losses and to protect investors from panic selling.
In India, the Securities and Exchange Board of India (SEBI) has put in place a circuit breaker system that applies to both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The circuit breaker system has three levels of trigger points based on the movement of the benchmark indices – Sensex and Nifty.
The First level of circuit breaker is triggered if the Sensex or Nifty moves up or down by 10% from its previous close. If this happens, trading is halted for 45 minutes. This is called the Level 1 circuit breaker.
The Second level of circuit breaker is triggered if the Sensex or Nifty moves up or down by 15% from its previous close. If this happens, trading is halted for two hours. This is called the Level 2 circuit breaker.
The Third level of circuit breaker is triggered if the Sensex or Nifty moves up or down by 20% from its previous close. If this happens, trading is halted for the remainder of the day. This is called the Level 3 circuit breaker.
It is important to note that circuit breakers are only activated during trading hours. If a sharp movement occurs before trading hours, the circuit breaker system will not be activated.
The circuit breaker system is intended to give investors a chance to reassess their positions and make informed decisions based on market conditions. It also helps to prevent panic selling and buying that can lead to sharp price movements.
However, it is not foolproof and cannot guarantee complete protection against losses. Investors should always be aware of the risks associated with investing in the stock market and should have a diversified portfolio to mitigate risks.
Benefits of circuit breaker in stock market:
1. Reducing panic selling
The circuit breaker system is designed to halt trading temporarily when there is a sharp movement in stock prices. This gives investors time to assess market conditions and make informed decisions, reducing the likelihood of panic selling.
2. Preventing large losses
Circuit breakers are activated when stock prices move up or down by a certain percentage within a short period of time. This mechanism helps to prevent large losses by giving investors time to reassess their positions and make informed decisions.
3. Promoting market stability
The circuit breaker system promotes market stability by preventing large, sudden price movements that can disrupt the market. This helps to maintain investor confidence in the market.
4. Providing time for information dissemination
Circuit breakers provide time for information dissemination. When trading is halted, news and information can be disseminated to investors, allowing them to make informed decisions.
5. Preventing market manipulation
The circuit breaker system can prevent market manipulation by preventing sudden, large price movements that can be caused by manipulation.
6. Encouraging long-term investing
The circuit breaker system encourages long-term investing by reducing the likelihood of panic selling and providing a stable market environment.
Disadvantages of circuit breaker in stock market:
1. Reduced liquidity
When trading is halted due to the circuit breaker system, it can reduce liquidity in the market, making it harder for investors to buy and sell stocks. This can lead to increased volatility and wider bid-ask spreads.
2. Market inefficiencies
The circuit breaker system can lead to market inefficiencies, particularly if trading is halted for an extended period of time. This can result in price distortions and may prevent the market from reflecting accurate prices.
3. Uncertainty
Circuit breakers can create uncertainty among investors, particularly if they are triggered frequently. This can lead to increased volatility and decreased investor confidence.
4. Unintended consequences
Circuit breakers can have unintended consequences, particularly if they do not function as intended. For example, they may fail to prevent large losses or may be triggered too frequently, leading to increased volatility.
5. Time delay
The circuit breaker system introduces a time delay into trading, which can be problematic for investors who need to make quick decisions. This delay can also prevent the market from reacting quickly to news or events.
In conclusion, circuit breakers are a mechanism put in place by stock exchanges to prevent large, sudden price movements and to protect investors. They help to provide stability to the market, reduce panic selling, and give investors time to assess market conditions.
Investing in the stock market can offer several benefits. But these benefits also comes with lot of risk. Below are the list of some of the major benefits which can give you a clear picture on it.
1. Potential for Capital Appreciation:
Stocks have the potential to provide capital appreciation, which means that your investments can increase in value over time. As companies grow and become more profitable, their stock prices may rise, providing investors with capital gains. By investing in a diversified portfolio of stocks, you can increase your chances of earning strong returns over the long term.
2. Diversification:
Investing in the stock market can help you diversify your investment portfolio, reducing the risk of being overly exposed to any one particular asset class. By investing in a range of stocks across different industries and sectors, you can reduce the risk of your portfolio being negatively impacted by factors that affect only one industry or sector. This can help to smooth out the overall performance of your portfolio, making it more stable and predictable over the long term.
3. Dividend Income:
Some companies pay dividends to their shareholders, which can provide a steady stream of income for investors. Dividends are payments made by companies to their shareholders out of their profits, and can provide a regular source of income for investors. While not all companies pay dividends, many established, financially healthy companies do, and this can be a source of income for investors seeking a steady, reliable stream of returns.
4. Inflation Hedge:
Investing in the stock market can also help to protect your portfolio against inflation. Over the long term, stocks have historically provided higher returns than many other asset classes, such as bonds or cash. This means that, over time, your investments in stocks may increase in value at a rate that outpaces inflation, helping to maintain the purchasing power of your portfolio.
5. Access to Professional Management:
By investing in mutual funds or exchange-traded funds (ETFs), you can benefit from the expertise of professional fund managers who research and select stocks on your behalf. This can help to save time and effort for individual investors, who may not have the time or resources to research individual stocks themselves. By investing in professionally managed funds, you can benefit from the expertise of experienced managers who are dedicated to finding the best investment opportunities in the market.
6. Liquidity:
The stock market provides a high level of liquidity, meaning that it is easy to buy and sell shares in publicly traded companies. This means that, if you need to access your funds quickly, you can do so relatively easily. This is in contrast to other investment options, such as real estate or private equity, which can be more difficult to buy and sell quickly.
It is important to note, however, that investing in the stock market is not without risks. Stock prices can be volatile, and the market can experience significant fluctuations over short periods of time. As such, it is important for investors to have a long-term perspective when investing in stocks. It is also important to do your own research and seek advice from a financial professional before making any investment decisions.
In summary, investing in the stock market can provide a range of benefits, including potential for capital appreciation, diversification, dividend income, inflation protection, access to professional management, and liquidity. While investing in stocks can be risky, with careful research and a long-term perspective, it can be a valuable component of a well-diversified investment portfolio.
To begin buying and selling in share market or stock market in India, you must have a Demat and trading account. Demat and trading accounts in India are offered by the two depositories, NSDL and CDSL, via brokerage firm, often known as stock brokers or share brokers. The trading account is where you’ll place bids for buy or sell order and Demat account is for holding your shares in decentralized form. The trading of share in India stock market takes place on two stock exchange- the Bombay Stock Exchange i.e (BSE) and the National Stock Exchange i.e (NSE).
Ensure you have sufficient risk capital to invest.
Risk capital is money you might be free to invest. This money is not utilized in paying your living expenses, repaying your money owed, or held in your retirement account. In other words, this is money you possibly can stand to lose (but obviously don’t wish to). Along with your retirement account, most financial professionals advise that you simply maintain about six month’s worth of wages in financial savings. This can be a good financial cushion to cowl unforeseeable life events, like losing your job or becoming sick.Any money left over after that is your risk capital.
Six month’s worth wage is a minimal amount to maintain in financial savings. For more safety, take into account saving a yr’s value or more.
In case your planning to invest on-line, you may need to determine what type of trades you will be making. If you happen to do more day trading, you may want a platform that is responsive and has low per-trade charges. Alternately, for those who plan to make long-term investments, you may afford a platform with greater trading charges that provides extra services. Your selections here will inform your choice of brokerage.
Step one is to find a stock broker or firm. Stock brokers are of two types- full service and discount. A full service broker offers quite a lot of services along with the buying and selling of shares such as Analysis and advise in addition to retirement and tax planning.
For example: for those who open your trading account with the bank subsidiary, it may be your Three in 1 account,i.e saving bank account, Demat account and an online buying and selling facility. Other full service brokers provide all these facilities except a savings account.
Discount brokers are new to India.They charge as much as low charges than full service broker and provide a no frill stock broking accounts. They solely provide the required trading facilities at least possible price.
Each broker charges commission and certain fees for processing traders order. These fees can differ from dealer to dealer.
Some give low cost on the basis of the amount of trade conducted.Take all this into consideration before opening an account. However do not over-emphasize the factors. You should understand the services provided.
You may go to the workplace of dealer or ask the dealer to send its consultant to your own home with the account opening form and The know your client form i.e KYC form.
You should fill up these forms and submit it together with the identification and address proof such as voter ID card, pan card, birth certificates, passport, ration card, aadhar card, and etc.
As soon as your application is verified you’ll be given your trading account detail.
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:
You can trade to any style – strategies can be built on five minute charts, hourly charts, daily charts, or even weekly charts.
There is massive amount of information – charts, real – time news top level research – all available for free.
All key information is public & disseminated instantly.
You can collect interest on trades on a daily or even hourly basis.
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.
Customizable leverage allows you to be a conservative or as aggressive as you like (cash on cash or 100:1 margin).
No commission means that every win or loss is clearly accounted for in the P & L.
You can trade 24 hours a day with ample liquidity ($20 million up).
There is no discrimination between going short or long (no upstroke rules).
You can’t lose more capital than you put (automatic margin call).
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.
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.
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
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.
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.
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.
“ 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:-
The commission charges for future trading are relatively small as compared to other type of investment.
Futures contracts are highly leveraged financial instruments which permit achieving greater gains using a limited amount of invested funds.
It is possible to open short as well as long positions. Position can be reversed easily.
Lead to high liquidity.
DISADVANTAGES:-
Leverage can make trading in futures contracts highly risky for a particular strategy.
Futures contract is standardized product & written for fixed amounts & terms.
Lower commission costs can encourage to trader to take additional trades & lead to over trading.
It offers only a partial hedge.
It is subject to basis risk which is associated with imperfect hedging using future.
THERE ARE TWO KINDS OF PARTICIPANTS IN FUTURE MARKETS:
HEDGERS
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.
