CHAPTER 6B : Trading Strategies - Why trade with equal investment in each call?

Trading with equal investment in all calls is a trading strategy, which results into a minimal loss. A brief explanation for same is as mentioned below:

Example 1 –

On Day 1, a trader buys 800 shares of SBI @ Rs. 300/- and exits in profit @ Rs. 310/-.

Investment = Rs. 2,40,000/-

Profit = Rs. 8,000/-

On Day 2, the same trader buys 1000 shares of Axis Bank @ Rs. 450/- (as he had got a good profit on day 1) and exits in a loss @ Rs. 435/-.

Investment = Rs. 4,50,000/-

Loss = Rs. 15,000/-

Trader resulted into a net loss of Rs. 7,000/-.

Example 2 –

On Day 1, a trader buys 800 shares of SBI @ Rs. 300/- and exits in profit @ Rs. 310/-.

Investment = Rs. 2,40,000/-

Profit = Rs. 8,000/-

On Day 2, the same trader buys 533 shares of Axis Bank @ Rs. 450/- (equal investment in all calls strategy) and exits in a loss @ Rs. 435/-.

Investment = (approx.) Rs. 2,40,000/-

Loss = (approx.) Rs. 8,000/-

Trader resulted into a net no profit – no loss.

Over a long period of time (a month or a year), investing equal ion all calls thus yields more returns when compared to random investments (by emotions) of any amounts in these calls.

DreamGains thus suggests “Equal investment in all calls as a golden rule to follow”.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 6A : Trading Strategies - Why put a Stop Loss?

What Is a Stop-loss Order?

It is an order placed with a broker to buy or sell once the stock reaches a certain price. The purpose of a stop-loss is to limit a trader's/investor's loss on a script. Example – A trader purchased SBI at Rs. 300 per share and put a stop-loss order for Rs. 295. According to the trade, if the stock price falls below Rs. 295, his shares will be sold at the market price. DreamGains suggests to always trade with a Sop-loss.

Benefits

1. The benefit of a stop-loss order is that you don't have to monitor on a continuous basis about how a particular script is trading in the market. On a lot of occasions (example – you are in a meeting or on a vacation), it will not be possible for you to keep a track of your positions.
2. Stop-loss orders are also used to book profits. In such cases, the stop-loss order is set at a price/percentage level below the current market price (which is in profit at current level). The stop-loss levels can be changed as the script price fluctuates. Using a stop-loss for this purpose allows traders and investors to run in profits while guaranteeing that they book at least some profits in case the stop-loss triggers. Example – In our SBI example, let’s say that the current market price has reached to Rs. 315 (i.e. Rs. 15 profit per share). A trader can then (according to his judgment) put a stop-loss at Rs. 310, so that even in case the prices fall down, he will book at least Rs. 10 profit per share. This helps the trader remain bullish on the script; while safe-guarding his profit in case a dip in prices occurs.
3. A stop-loss order costs nothing to be placed. Brokerage is charged only once the stop-loss triggers and the stock is sold.
4. Also, a stop-loss allows the traders/investors to take decisions without any emotional influences. A general tendency of people is to keep believing that if they give their script another couple of days/months, it will rebound to its original price. This, in a majority of cases causes further losses to traders/investors.

Disadvantages

1. The disadvantage of a Stop-loss Order is that the SL (Stop-loss) price could be triggered by a short-term movement in a stock's price. The art lies in selecting a stop-loss that allows your script to fluctuate in small ranges on a daily basis while preventing the risk of getting triggered. There are no strict rules for the levels at which the stop-loss should be put. This completely depends on a trader’s trading strategies and style - an active trader might use 5% while a long-term investor might choose 10% or more and some risky traders/investors might choose more than 20% also.
2. When a stop-loss is triggered, the stop-loss order becomes a market order and the price at which your position exits may be much different from the stop-loss price. This becomes more of a risk in a fast-moving market.
3. Yet another disadvantage of a stop-loss order is that in a lot of cases, brokers do not allow to place a stop-loss order on certain scripts.

A stop-loss order is thus a simple strategy, yet there are only a few traders/investors who use it. A stop-loss order is to safe-guard a trader’s/investor’s interests. You hope you never have to use it, but it's always good to know that you have the protection in case you need it.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 5 : Brokerage Fundamentals

Every Trader/ Investor has to pay a brokerage for every trade entered via the Trading terminal whether online or offline.

Intraday Brokerage - 0.03% for buying and 0.03% on selling, plus taxes.

Delivery Brokerage - 0.30% for buying and 0.30% for selling, plus taxes.

Although the maximum brokerage which can be charged, according to SEBI should not be more than 2.5% of the trading volume.

Brokerage is levied on the total transaction value. Ex: A trader has bought 1000 shares @100 and sold them @105 in intraday, the brokerage calculation would be

• Buying Brokerage = (1000 *100) * 0.03% = Rs. 30
• Selling Brokerage = (1000 * 105) * 0.03% = 31.50

Various brokerage firms charge brokerage in different ways. Some firms charge on total turn-over (buying and selling), some charge a fixed amount per lot whereas some others charge a fixed amount per month irrespective of number of trades or turn-over. Based on the brokerage charging method and available margin, customer can select the brokerage firm. DreamGains customer support team can assist you with finding the right broker for you and providing advice on short-term/ long-term positions. Just follow the link for more information.

Brokerage and Tax Calculation - Intraday

Buy Side

• Brokerage: 0.01 % to 0.03% (Charged on order amount). It is a broker's income.
• Service Tax: 12.36 % (Charged on brokerage). It is excise department's income.
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.

Sell Side

• Brokerage: 0.01 % to 0.03% (Charged on order amount). It is broker's income.
• Service Tax: 12.36 % (Charged on brokerage). It is excise department's income.
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.
• STT Security Transition Tax: 0.0125% (Charged on order amount). It is Central Government's income.

If a client has bought 1000 shares at Rs. 100, then the calculation of charges would be done as follows:

Buy Side

• Brokerage: 30 (0.03 paise brokerage)
• Service Tax: 3.7
• NSE / BSE turn over charges: 3
• Stamp duty / Notary Tax: 2
• Total Amount: 38.70

If the client has now booked profit at 103, the calculation of charges would be done as follows:

Sell Side

• Brokerage: 30.90
• Service Tax: 3.82
• NSE / BSE turn over charges: 3.09
• Stamp duty / Notary Tax: 2.06
• STT Security Transition Tax: 12.88
• Total Amount: 52.75

Total Charges = Buy + Sell = Rs. 38.70 + Rs. 52.75 = Rs. 91.45

Brokerage and Tax Calculation - Delivery

Buy Side

• Brokerage: 0.3% (Charged on order amount). It is broker's income.
• Service Tax: 12.36 % (Charged on brokerage). It is excise department's income.
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.

Sell Side

• Brokerage: 0.3% (Charged on order amount). It is broker's income.
• Service Tax: 12.36 % (Charged on brokerage).It is excise department's income. 
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.
• STT Security Transition Tax: 0.0100% (Charged on order amount). It is Central Government's income.
• DP Charge: Rs. 18 to 20/- per script, whether the client sell 1 share or 100 shares as it is the charge to close/ Sell Off a particular trade.

If a client has bought 1000 shares at Rs. 100, the calculation of charges would be done as follows:

Buy Side

• Brokerage: 300 (0.30 paise brokerage)
• Service Tax: 37.08
• NSE / BSE turn over charges: 3
• Stamp duty / Notary Tax: 2
• Total Amount: 342.08

If the client has now booked profit at 105, the calculation of charges would be done as follows:

Sell Side

• Brokerage: 315
• Service Tax: 38.93
• NSE / BSE turn over charges: 3.15
• Stamp duty / Notary Tax: 2.10
• STT Security Transition Tax: 10.50
• Total Amount: 369.68 (DP Charge excluded)

Total Charges = Buy + Sell = 342.08 + 369.68 = 711.76

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 2E : Market Fundamentals - Bulls, Bears, Chickens and Pigs

On Dalal Street, the bears and bulls are in a constant struggle for profits.

The Bulls - A bullish market indicates that economy is running good, GDP (Gross Domestic Product) is growing, people are finding jobs, and stocks are rising. If a person is optimistic and believes that stocks will go up, s/he is called a "bull" and is said to have a "bullish outlook". 

The Bears - A bearish market indicates that economy is bad, recession is looming and stock prices are falling. In bearish markets some investors make money by short selling whereas others wait until they feel that the bear market is nearing its end, and then buy in anticipation of a bull market. If a person is pessimistic, believing that stocks prices are going to fall down, s/he is called a "bear" and is said to have a "bearish outlook". 

The Chickens - Chickens are afraid to lose everything. Their fear tops their need to make profits and so they invest only in money market securities or get out of the markets entirely.

The Pigs - Pigs are high-risk investors looking for that one big shot in a short span of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They are impatient, greedy, and emotional about their investments, and they usually invest in high-risk securities. Professional traders love the pigs, as it's often from their losses that the bulls and bears reap their profits. 

What Type of Investor Will You Be?

There are ample of investment strategies in market. The bulls and bears constantly struggle, but they both make money with changing trends in the market. Even the chickens see some returns, though not a lot. The only loser in this market is the pig.

You have to make sure what type of investor will you be. Always remember the saying: "Bulls make money, bears make money, but pigs just get slaughtered!"

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 2D : Market Fundamentals - Market Timings

Trade time: The normal trading time for Equity Market is between 09:15 am to 03:30 pm, Monday to Friday.

Pre-open session: This session is basically to decide the opening price of the markets in Normal trading session, where trading for only Nifty 50 shares takes place the session is from 09:00 am to 09:15 am, Monday to Friday.

Closing price calculation: The closing price of a stock is not the LTP ( Last traded price) of the stock but the average price between 03:00 pm to 03:30 pm, this calculation takes place between 03:30 to 03:40 pm, Monday to Friday.

Post close trading: The post close trading happens between 03:40 pm to 04:00 pm, basically used for squaring off some positions created by mistake, the prices in this segment do not change and trading is done only on the adjusted closing prices.

Trade time: The normal trading time for Commodity (MCX) Market is between 10:00 am to 11:30 pm, Monday to Friday.

Trade time: The normal trading time for Agri-Commodity (NCDEX) Market is between 10:00 am to 05:00 pm, Monday to Friday.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 2C : Market Fundamentals - Exchanges and Indices (Equity)

Stock Exchange

A stock exchange or share market is a corporation or mutual organization which provides facilities for stock brokers and traders, to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends.

There are 2 recognized Stock Exchanges in India for Share Trading:

A. BSE (Bombay Stock Exchange) is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875, there are around 5000 + shares listed on BSE.

B. NSE (National Stock Exchange) was incorporated in November 1992 and currently has around 1500 shares listed and has a trading facility for Cash, Derivative and Currency derivative products. The highest turnover in Indian Equity markets happen on NSE currently.

These are an Electronic platform based trading exchanges graduated from the traditional OTC (over the counter) mode of trading.

Stock Market Index

A stock index or stock market index is a measurement of the value of a section of the stock market. It is computed from the weighted average prices of selected stocks. It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.

Sensex and Nifty are the two major indices of Indian Share Market. The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down. Same goes for Nifty and NSE.

Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the “BSE Mid-cap Index”. There is an index for the metal stocks. There is an index for the FMCG stocks. There is an index for the automobile stocks etc. There are many other types of indexes.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 2A : Market Fundamentals - Participants of Market

I. Regulator is a body which regulates and overlook to the smooth Functioning of Financial Market Systems, they do recognize, allow, dis-allow other financial intermediaries for working in financial markets, redresal for the Investors, Creates / Modifies rules and regulations in financial markets.

A. SEBI: Securities Exchange Board of India is the Big Boss of Financial markets and the main regulator in the Capital Markets, SEBI regulates Equity Markets and Currency Derivative segments, came into power in 1992

B. RBI: Reserve Bank of India mainly controls the Banking and monetary systems in the Country making Monetary policies, looking after the working of Banks. They regulate Currency Derivative Segment along with SEBI

C. FMC: Forward Market Commission is the regulator for Commodity Derivatives in India

II. Exchanges provide a facility for Traders to exchange (Buy/ Sell) Securities, Commodity, Currency via an electronically driven platform.

A. Equity Exchanges

NSE- National Stock Exchange

BSE- Bombay Stock Exchange

B. Commodity Exchanges

MCX-Multi Commodity Exchange

NCDEX- National Commodity and Derivative Exchange

C. Currency Exchanges

MCX- SX

NSE Currency Derivative USE

III. Brokers/ Intermediaries are the body which acts as a interface between the Client and the Financial System and facilitates the proper trading in Financial Products like India Infoline, JM Financial, Sharekhan, Religare, ICICI Direct, Angel Broking, SMC Global Reliance Money to name a few.

Sub Broker: A sub broker is like a ' Franchisee' of a stock broker registered with SEBI and can act like and on behalf of a Broker i. e. Open Trading account and service clients, in turn he gets a sharing out of the total brokerage earned from the clients trading under the Sub Broker.

IV. Investors and Traders: These are the makers of the market, the real end client for whom the whole system exists. All the products and systems in Financial Markets are designed keeping in mind these real Investors and Traders of the System. These comprise of all the Indian Retail, HNIs, Institutional and Foreign Direct and Institutional Clients (FII) trading in the Indian Financial Markets for this Category of Participant in the Markets.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 1 : An Introduction to Indian Financial Market

What is a Financial Market?

A Financial Market like any other market is a System where Trading in Financial Instruments takes place. This System is now completely automated through Electronic Interfaces and consists of Many Buyers and Sellers with their individual objective of Entering in Financial Markets. This System is a Government Recognized System. It is a place where you give your money to a financial asset which can fetch you more returns or sometimes more safety than a conventional Bank account.

Capital Market operates through recognized exchanges whereas Money Market operates through phone lines, computers and internet.

Instruments for Capital Market - Equities, Bonds, Mutual Funds, Derivatives, Commodities, Currencies

Instruments for Money Market – Call Money, Repo (Reverse-Repo), T-Bills, Commercial Paper, Certificate of Deposit, Inter Corporate Deposits

Both money market and capital market have their own importance and benefits as one is primarily designed for long term planning and the other one for meeting short term commitments.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

Stocks vs Futures

There are plenty of differences between the cash segment of the capital market and the futures segment. Here are few of the easy to understand differences.

1) Ownership

When you buy shares in the cash market and take delivery, you are the owner of these shares or you are a shareholder, until you sell the shares. You can never be a shareholder when you trade in the derivatives segment of the capital market.

2) Holding period

When you buy shares in the cash segment, you can hold the shares for life. This is not true in the case of the futures market, where you have to settle the contract within three months at the very maximum.

3) Dividends

When you buy shares in the cash segment, you normally take delivery and are a owner. Hence, you are entitled to dividends that companies pay. No such luck when you buy any derivatives contract.

4) Risk

Both, cash and futures markets pose risk, but the risk in the case of futures can be higher, because you have to settle the contract within a specified period and book losses. In the case of shares bought in the cash market, you can hold onto them for an indefinite period and can hence sell when prices are higher.

5) Investment objective differs

You buy a contract in the derivatives market to hedge risk or to speculate. Individuals buying shares in the cash market are investors.

6) Lots vs shares

In the derivatives segment you buy a lot, while in the cash segment you buy shares.

About DreamGains

Dreamgains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.