Stock market provides the same chance for investors to take their return , but so many investors could not earn enough returns and lose money , Why ? Because they do not know what is risk management and do not use it .
There are different ways and definition about risk management . Some people call it position sizing , while others call money management . Most of the books presented risk management so complicatedly that common investors unable to understand formulas for calculating the risk . But in this user-friendly handbook, we describe it simple and practical as possible .
Risk management is the process of measuring , or assessing risk and then developing the strategies to manage the risk , while attempting to maximize the returns . Typically involves utilizing a variety of trading techniques , model and financial analysis . The potential return from any investment is generally depending to the amount of the risk the investor is willing to assume .
Investors will not take on greater risks without the possibility of higher earnings . This is called the risk premium . In general , the greater the risk , the higher the potential return ; the lower the risk , the lower the expected return .
Different markets have varies risks . Their volatility varies for example risk in the stock market , and currency market is not the same . Also, each stock in the stock market has its own risk , because the volatility is varies. So, if a stock has more volatility you should invest less money in it . Risk management is a must for stock trading of any kind
Common Types Of Risk :
There are several main types of risk , and investors should understand them well because some affect certain investments more than others . The two common type of risks that apply to almost all investments are :
Market Risk : The chance that financial markets in general may rise or fall in value .
Inflation Risk : May be the most important factor for long – term investors to consider , because inflation is cumulative , and it compounds just as interest does .You can’t control the inflation risk , but with a good strategy you can manage and control the affect of market risk on your stocks.
A professional trader always tries to understand and control protfolio risk . Before entering into any trade , good traders first think about how much risk to take and how much risk exposure comes with a particular trade selection . Only then do they allow themselves to think about how much profit they stand to make .
Prudent investors always close their position and exposure if they determine that a protfolio caries too much risk .
Risk Management For a Trade :
Before you decide to trade consider to these fundamental principles .
Before you trade a stock , know how much you are willing to lose .
Check the stock to be sufficiently liquid , could you buy or sell promptly ?
Determine the cut-loss level before trading .
Determine your profit target ( take-profit-level ).
Buy the stock only at an acceptable price level . Use a limit order when you buy a stock .
Immediately after the trade has been confirmed , enter the stop-loss-at-market order at your predetermined stop-loss level .
Take profit when the trade reaches your profit targets .
Protfolio Risk Management :
Your protfolio risk will be well under control and you manage your protfolio risk actively , by managing the risk of each trade . Follow the pointers to control your protfolio risk management
Determine your overall cut-loss level . Usually your protfolio should not lose more than 10 percent of your capital .
Diversity your investment in at least six or more different stocks .
Know your overall risk tolerance before building up the protfolio.
Act quickly when you see your risk limits exceeded .
Close out the entire protfolio if it losses to your overall stop-loss level.
Thursday, March 12, 2009
Monday, March 9, 2009
Returns with Low Risk
Delivery based trading means buying shares and holding them for a certain period of time is called delivery based trading . The shares you bought will be in you Demat account . Once you take the delivery of shares you could hold them as long as you want . You must have sufficient funds in your account . To take delivery . You need not get any margin to buy shares in delivery . Study the following points carefully and get the best returns in a short period of time
Basically , Delivery based trading can be minimum one week , one month or a couple of months . How long you hold your scrips and shares will depend on other technical indicators and averages .
How to select best scrips ?
There are thousand of shares and stocks, which one is best for delivery trading and which one will give maximum profit in short period of time . Have a look on the selection criteria points :
1. Sector-50 percent of stocks rise and fall is directly related to the strengths and the weakness of its industry group .
2. Never lose more than 1 – 2 percent of your total mount on any trade .
3. Promoters holding more than 40 percent indicate safety for retail investors .
4. Liquidity – buying and selling of shares minimum one litre per day .
Consistent Earnings : Generating profit consistently year after year or quarter after quarter .
EPS : Earning per share is calculated by taking a company’s net earning and dividing by the numbers of outstanding shares of the stock the company has .
P/E Ratio : EPS is a great way to compare earnings across companies , but it does not tell you anything about how the market values the stock . That is why fundamental analysis use the P/E ratio , to figure out how much the market is willing to pay for a company’s earnings. Higher the PE ratio , more people are convinced to pay high for that share expecting higher growth in the coming future .
Dividend Yield : It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stock price . Its percentage return a company pays out to its shareholder in the form of dividends . The higher the percentage the better will be the return .
Price/Book Ratio : The higher the ratio the higher the price the market is willing to pay for the company above its assets . It is more useful to value investor than the growth investor .
Price/Sales Ratio : As with earning a book value , you could find out how the market is valuing a company by comparing the company’s price to its annual sales . Lower Price/Sales are usually thought to be the better investment since their sales are priced cheaply . P/S ratios are usually used for only for unprofitable companies , since such companies don’t have a P/E ratio .
Returns on Equity : It is used as a general indication of the company’s efficiency , in other words , how much profit it is able to generate given the resources provided by the stock holders . Investors usually look for the companies with ROE that are high and growing .
Debt to Equity Ratio : This should not be more than 1 , and less than 1 indicates the company has very less debt . This is very important during market down trend as the company has to pay lots of interest ratio beside low profitability . So its good sign , if company has less debt and that is debt equity ratio.
Investment Tips in Delivery Based Trading :
1. Buy shares of different companies : Don’t ever try to pull all your money in a single share . Try to get shares of the multiple companies and if possible from different sectors . You will always get benefited , by investing in companies of different sectors , because we never know which sector will have good news and which sector will have a bad news . “ Market always reacts for news “
2. Be Patient : When you buy shares , they may go down . In share market its general practice that shares go up and down . If they go down than don’t panic and sell your shares . Most of the investors wait till their shares come to their buying level and then sell , but generally they forget that is the actual buying level of shares and from this level onwards the share price will starting moving upwards .
3. Hold as long as you want : If you buy shares and if it goes down , then you can hold them and sell them only when your shares go above your buy price .
4. Loan : Now – a – days , some banks and some financial firms provide loans on your shares . So you can utilize your shares in your bad times .
5. Dividend : If companies make good profit , then they may declare dividend per share . If you hold shares of such companies then you may get dividend per share .
6. Good Returns : Now – a – days if you keep your money in banks then you get maximum 9 or 9.5 percent per year . If you invest in shares of good growing companies then you can earn minimum 15 percent returns per year . Some companies give 30 to 40 percent returns per year . Best share market returns are based on delivery based trading for long term .
7. Bonus Share : If the company makes extra ordinary profit then company may declare bonus shares . Bonus shares like 1:1 means if you have one share then you may get another free . So if you have delivery of such share then you are liable for such bonus shares .
Financial Planing for your Share returns : It is another important point to consider , if you hold more than one share then it is always advisable to prepare technical document for all your shares . You ca prepare excel or word sheet on your computer or you can write in your notebook .
In this manner you will come to know what is happening about your share and you can decide when to sell or till what period to hold . This system is called portfolio maintaining .
Even you can keep a close watch on share which you are planning to buy and if you get proper signal or feel comfortable with its results , then you can jump and buy that share .
Basically , Delivery based trading can be minimum one week , one month or a couple of months . How long you hold your scrips and shares will depend on other technical indicators and averages .
How to select best scrips ?
There are thousand of shares and stocks, which one is best for delivery trading and which one will give maximum profit in short period of time . Have a look on the selection criteria points :
1. Sector-50 percent of stocks rise and fall is directly related to the strengths and the weakness of its industry group .
2. Never lose more than 1 – 2 percent of your total mount on any trade .
3. Promoters holding more than 40 percent indicate safety for retail investors .
4. Liquidity – buying and selling of shares minimum one litre per day .
Consistent Earnings : Generating profit consistently year after year or quarter after quarter .
EPS : Earning per share is calculated by taking a company’s net earning and dividing by the numbers of outstanding shares of the stock the company has .
P/E Ratio : EPS is a great way to compare earnings across companies , but it does not tell you anything about how the market values the stock . That is why fundamental analysis use the P/E ratio , to figure out how much the market is willing to pay for a company’s earnings. Higher the PE ratio , more people are convinced to pay high for that share expecting higher growth in the coming future .
Dividend Yield : It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stock price . Its percentage return a company pays out to its shareholder in the form of dividends . The higher the percentage the better will be the return .
Price/Book Ratio : The higher the ratio the higher the price the market is willing to pay for the company above its assets . It is more useful to value investor than the growth investor .
Price/Sales Ratio : As with earning a book value , you could find out how the market is valuing a company by comparing the company’s price to its annual sales . Lower Price/Sales are usually thought to be the better investment since their sales are priced cheaply . P/S ratios are usually used for only for unprofitable companies , since such companies don’t have a P/E ratio .
Returns on Equity : It is used as a general indication of the company’s efficiency , in other words , how much profit it is able to generate given the resources provided by the stock holders . Investors usually look for the companies with ROE that are high and growing .
Debt to Equity Ratio : This should not be more than 1 , and less than 1 indicates the company has very less debt . This is very important during market down trend as the company has to pay lots of interest ratio beside low profitability . So its good sign , if company has less debt and that is debt equity ratio.
Investment Tips in Delivery Based Trading :
1. Buy shares of different companies : Don’t ever try to pull all your money in a single share . Try to get shares of the multiple companies and if possible from different sectors . You will always get benefited , by investing in companies of different sectors , because we never know which sector will have good news and which sector will have a bad news . “ Market always reacts for news “
2. Be Patient : When you buy shares , they may go down . In share market its general practice that shares go up and down . If they go down than don’t panic and sell your shares . Most of the investors wait till their shares come to their buying level and then sell , but generally they forget that is the actual buying level of shares and from this level onwards the share price will starting moving upwards .
3. Hold as long as you want : If you buy shares and if it goes down , then you can hold them and sell them only when your shares go above your buy price .
4. Loan : Now – a – days , some banks and some financial firms provide loans on your shares . So you can utilize your shares in your bad times .
5. Dividend : If companies make good profit , then they may declare dividend per share . If you hold shares of such companies then you may get dividend per share .
6. Good Returns : Now – a – days if you keep your money in banks then you get maximum 9 or 9.5 percent per year . If you invest in shares of good growing companies then you can earn minimum 15 percent returns per year . Some companies give 30 to 40 percent returns per year . Best share market returns are based on delivery based trading for long term .
7. Bonus Share : If the company makes extra ordinary profit then company may declare bonus shares . Bonus shares like 1:1 means if you have one share then you may get another free . So if you have delivery of such share then you are liable for such bonus shares .
Financial Planing for your Share returns : It is another important point to consider , if you hold more than one share then it is always advisable to prepare technical document for all your shares . You ca prepare excel or word sheet on your computer or you can write in your notebook .
In this manner you will come to know what is happening about your share and you can decide when to sell or till what period to hold . This system is called portfolio maintaining .
Even you can keep a close watch on share which you are planning to buy and if you get proper signal or feel comfortable with its results , then you can jump and buy that share .
Friday, February 27, 2009
Quick Bucks
Many people become very rich in the commodity markets . It is one of a few investment areas where an individual with limited capital can make an extraordinary profits in a relatively short period of time .
Nevertheless because most people lose money , commodity trading has a bad reputation as being too risky for the average individual . The truth is that commodity trading is only as risky as u want to make it .
Those who treat trading as a get-rich-quick scheme are likely to lose because they have to take big risks . If you act prudently , treat your trading like your business instead of a giant casino gambling and are willing to settle for a reasonable return , the risks are acceptable . The probability of success is excellent . The process of trading commodities is also known as futures trading . Unlike other kinds of investments , such as stocks and bonds , when you trade futures , you do not actually buy anything or own anything . You are speculating on the future direction of the price in the commodity you are trading . This is like a bet on future price direction . The terms “ buy “ and “ sell “ merely indicate the direction you expect future prices will take .
If for instance , you were speculating in corn , you would buy futures contract if you thought the price would be going up in the future . You would sell a futures contract if you thought the price would go down . For every trade , there is always a buyer and a seller . Neither person has to own a corn to participate . He must only deposit sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trade lose money . In addition to speculators , both the commodity’s commercial producers and commercial consumers also participate . The principal economic purpose of the future markets is for these commercial participants to eliminate their risks from changing prices .
On one side of a transaction may be a producer like a farmer . He has a field full of corn growing on his farm . It won’t be ready for harvest for another three months . If he is worried about the price going down during that time , he can sell future contracts equivalent to the size of his crop and deliver his corn to fulfil his obligation under the contract . Regardless of how the price of the corn changes in the three months until his crop will be ready for delivery , he is guaranteed to be paid the current price . On the other side of the transaction might be a producer such as a cereal manufacturer who needs to buy lots of corn . The manufacturer such as Kellogg g, may be concerned that in the next three months the price of corn will go up , and it will have to pay more than the current price . To protect against this , Kellogg can buy future contracts at the current price . In three months Kellogg can fulfil its obligations under the contracts by taking delivery of the corn . This guarantees the regardless of how the price moves in the next three months , Kellogg will pay no more than the current price for its corn .
In addition to agricultural commodities , there are futures for financial instruments and intangibles such as currencies , bonds and stock market indexes . Each future market has producers and consumers who need to hedge their risk from the future price changes . The speculators , who did not actually deal in the physical commodities , are there to provide liquidity . This maintains an orderly market where price changes from one trade to the next are small . Rather than taking delivery or making delivery , the speculator merely offsets his position at some time before the date set for future delivery . If the price has moved in the right direction , he will profit . If not , he will lose .
In addition to reducing the costs of production , marketing and processing , future markets provide continuos , accurate , well-publicized price information and continuos liquid markets . Futures trading is beneficial to the public which ultimately consumes the goods traded in the future markets . Without the speculator futures markets could not function .Since the speculators perform the valuable functions of providing liquidity and assuming the risk of the price fluctuation , they can earn substantial returns . The potentially large profits are available precisely because there is also a risk of substantial loss .
As An Investment Vehicle :
There are many inherent advantages of commodity futures as an investment vehicle investment over other alternatives such as savings account , stocks , bonds , options , real estate and collectibles . The primary attraction , of course , is the potential for the large profits in a short period of time . The reason that future trading can be so profitable is leverage . While profits can be large in commodity trading , it is not easy to make consistently correct decisions about what and when to buy and sell .Commodity speculation offers an important advantage over such illiquid vehicles as real estate and collectibles . The balance in your account is always available If you maintain sufficient margin , you can even spend your current profit on a trade without closing out the position . With stocks , bonds and real estate , you can’t spend your gains until you actually sell the investment .
As you will see , commodity trading is not particularly complicated . Unlike the stock market where there are over ten thousand potential stocks and mutual funds , there are only about forty viable future markets to trade . Those markets cover the gamut of market sectors , however o you can diversify throughout important segments of the world economy . In futures trading , it is as easy to sell as it is to buy . By choosing correctly , you can make money whether prices go up or down . Therefore , trading a diversified portfolio of the futures markets offers the opportunity to profit from any potential economic scenario . Regardless of whether we have inflation or deflation , boom or depression , hurricanes droughts, famines or freezes, there is always the potential for profit trading commodities.
There are even tax advantages to making your money from futures trading. Regardless of the actual holding period , commodity profits are automatically taxed as sixty percent long-term capital gains and forty percent short-term capital gains . The current maximum capital gains rate is thirty-three percent , somewhat less than maximum rate of ordinary income . To extent that capital gains tax rates are reduced in the future , commodity traders will benefit . If the distinction is re-establishes so that the taxes on long-term gains are lower than on short-term gains , commodity traders will benefit .
Nevertheless because most people lose money , commodity trading has a bad reputation as being too risky for the average individual . The truth is that commodity trading is only as risky as u want to make it .
Those who treat trading as a get-rich-quick scheme are likely to lose because they have to take big risks . If you act prudently , treat your trading like your business instead of a giant casino gambling and are willing to settle for a reasonable return , the risks are acceptable . The probability of success is excellent . The process of trading commodities is also known as futures trading . Unlike other kinds of investments , such as stocks and bonds , when you trade futures , you do not actually buy anything or own anything . You are speculating on the future direction of the price in the commodity you are trading . This is like a bet on future price direction . The terms “ buy “ and “ sell “ merely indicate the direction you expect future prices will take .
If for instance , you were speculating in corn , you would buy futures contract if you thought the price would be going up in the future . You would sell a futures contract if you thought the price would go down . For every trade , there is always a buyer and a seller . Neither person has to own a corn to participate . He must only deposit sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trade lose money . In addition to speculators , both the commodity’s commercial producers and commercial consumers also participate . The principal economic purpose of the future markets is for these commercial participants to eliminate their risks from changing prices .
On one side of a transaction may be a producer like a farmer . He has a field full of corn growing on his farm . It won’t be ready for harvest for another three months . If he is worried about the price going down during that time , he can sell future contracts equivalent to the size of his crop and deliver his corn to fulfil his obligation under the contract . Regardless of how the price of the corn changes in the three months until his crop will be ready for delivery , he is guaranteed to be paid the current price . On the other side of the transaction might be a producer such as a cereal manufacturer who needs to buy lots of corn . The manufacturer such as Kellogg g, may be concerned that in the next three months the price of corn will go up , and it will have to pay more than the current price . To protect against this , Kellogg can buy future contracts at the current price . In three months Kellogg can fulfil its obligations under the contracts by taking delivery of the corn . This guarantees the regardless of how the price moves in the next three months , Kellogg will pay no more than the current price for its corn .
In addition to agricultural commodities , there are futures for financial instruments and intangibles such as currencies , bonds and stock market indexes . Each future market has producers and consumers who need to hedge their risk from the future price changes . The speculators , who did not actually deal in the physical commodities , are there to provide liquidity . This maintains an orderly market where price changes from one trade to the next are small . Rather than taking delivery or making delivery , the speculator merely offsets his position at some time before the date set for future delivery . If the price has moved in the right direction , he will profit . If not , he will lose .
In addition to reducing the costs of production , marketing and processing , future markets provide continuos , accurate , well-publicized price information and continuos liquid markets . Futures trading is beneficial to the public which ultimately consumes the goods traded in the future markets . Without the speculator futures markets could not function .Since the speculators perform the valuable functions of providing liquidity and assuming the risk of the price fluctuation , they can earn substantial returns . The potentially large profits are available precisely because there is also a risk of substantial loss .
As An Investment Vehicle :
There are many inherent advantages of commodity futures as an investment vehicle investment over other alternatives such as savings account , stocks , bonds , options , real estate and collectibles . The primary attraction , of course , is the potential for the large profits in a short period of time . The reason that future trading can be so profitable is leverage . While profits can be large in commodity trading , it is not easy to make consistently correct decisions about what and when to buy and sell .Commodity speculation offers an important advantage over such illiquid vehicles as real estate and collectibles . The balance in your account is always available If you maintain sufficient margin , you can even spend your current profit on a trade without closing out the position . With stocks , bonds and real estate , you can’t spend your gains until you actually sell the investment .
As you will see , commodity trading is not particularly complicated . Unlike the stock market where there are over ten thousand potential stocks and mutual funds , there are only about forty viable future markets to trade . Those markets cover the gamut of market sectors , however o you can diversify throughout important segments of the world economy . In futures trading , it is as easy to sell as it is to buy . By choosing correctly , you can make money whether prices go up or down . Therefore , trading a diversified portfolio of the futures markets offers the opportunity to profit from any potential economic scenario . Regardless of whether we have inflation or deflation , boom or depression , hurricanes droughts, famines or freezes, there is always the potential for profit trading commodities.
There are even tax advantages to making your money from futures trading. Regardless of the actual holding period , commodity profits are automatically taxed as sixty percent long-term capital gains and forty percent short-term capital gains . The current maximum capital gains rate is thirty-three percent , somewhat less than maximum rate of ordinary income . To extent that capital gains tax rates are reduced in the future , commodity traders will benefit . If the distinction is re-establishes so that the taxes on long-term gains are lower than on short-term gains , commodity traders will benefit .
Saturday, February 21, 2009
Online Trading
When it comes to investment , each move and each portfolio according to the market conditions and risk bearing capability is stock investment . Buying stocks online is not a new concept . Every person can afford it . Profitable buy is the basic thing that the stock world actually depends on . Once the buy is well thought of , it is positively going to give better returns . Making the decision to buy certain stock is not easy ; however, the following steps may provide you a rough layout to be followed .
Research and Education : Day trading or stock investment is all about keeping alert on the news and having a clear mind , though few people knew about it . It is recommended to get you well educated about the twists and turns of the stock market . Studying past moves and historic analysis may definitely help . Experiences are also a great help . Once you go through thorough research work , brace yourself to get real investment plans .
Get a System work for you : The meaning of system here is to get yourself a broker or brokerage firm through which you can have access to stock exchange . Make a choice , with the amount of the brokerages you want to work with and the facilities you demand . Never count upon the cheapest service as they may not serve you the services that you are in need of . You must always evaluate the worth of services you are demanding .
Decide on the Rules : It is a fact that every market has its own set of rules and notions of trade . You have to work on the buying and selling rules of stock market , watch the market and go for paper trade . Paper trade is the theoretical buying and selling of the stocks that tends you prove your profitability skills before you actually enter to some dine. It gathers you better speculation skills and gets you experience , through theoretical .
Get through the Formalities of the Broker : There is some paperwork that you have to work on to get the real trade . Get yourself signed to the firm registered with one or more stock exchanges . Proceed with the initial deposits that are to be made for trading accounts and get the needed softwares installed to your PC for online trading .
Maintain a Balanced Portfolio : Be prepared for certain setbacks and losses . However , consistency and break-free moves get you to maintain a balanced portfolio that is beneficial in long run . Also , steady trading is considered to be more meaningful rather than flying in the air right from the start . Inexperienced flight may get you nowhere in the long run . Hence , balancing your trading speed you’re your portfolio is considered to be wise .
Seek for all the opportunities including Index Funds : Diversifying your investments is the best way to avoid the unbearable losses . It tends to integrate your risks and thus serves as a benefit . Also, index funds are a good option to invest in . They provide a balanced , low-cost way of investing and have consistent long-term gains . Hence , a wise selection of stock investment option is considered admirable and well thought decision while investing in stocks . Seeking all opportunities provides you a better range of choices .Online trading is gaining popularity at a rapid pace . Number of known and unknown companies , firms and financial institutions are providing online trading facilities , You only need to register yourself with one of it .
Is Trading through Internet Safe ?
The safety of transactions on internet depends on the encryption system used . The better this transaction system , the more difficult it is for any person to hack this site . Internationally , the best system available today is 128-bit encryption . Secondly, you too can ensure the safety of the transaction online . You normally get a secured user id and password , the secrecy of which is to entirely maintained by you . Thirdly , if the transaction system requires no manual intervention you further improve the safety in the transaction . Among Indians sites , very few are fully integrated online trading sites . This enables the elimination of the possibility of any manual intervention , which means orders are directly sent to the stock exchange ensuring that you get the best and the right price .
What about the Security of My Money , Demat Shares and Transaction Documents ?
In systems where the broking , banking and demat accounts are completely integrated , your money remains in your own bank account , and does not get transferred to the broker’s pool account. The experience of trading through Internet depends a great deal on the type of product offered by the site . Say for example , one of the issues bothering you may be getting tired of the paperwork involved after every trade , in writing cheques . You would open then seek a system that eliminates these processes . In online trading sites the greater the back-end integration of the system , the greater the amount of work the sites do for you , therefore greater the convenience available to you .
In big financial institutions your broking account , bank account and the Demat account are linkee electronically . So when you punch in a buy or a sell order , the system checks the funds / shares availability and automatically credits /debits the account once the order is executed by the exchange .
But I am not comfortable with Internet , or with Finance , how can Online Trading be easy for me ?
Contrary to common perceptions , trading through Internet does not require any expertise in working on the computer , or any special financial skills . You could try the demo of online trading sites to find out why others like you , with little or no knowledge about Internet or finance , have switched on to online trading . Or you could attend the demonstrations sessions held by such websites in your city .
Is Trading through Internet a costly affair ?
The convenience provided by online trading is even then worth the costs involved . And online trading sites are not that costly . For example , a trader can trade shares on margin at rates as low as 0.10% and if one wishes to trade in cash , then rates applicable are as low as 0.4% However , it is important to compare various online trading sites on brokerage rates , inclusive of all sub-charges .
Discount stockbrokers allow you the flexibility of creating your own portfolio , sharing your money between mutual funds , bonds, stocks options and exchange traded funds . Most of the companies that are into discount brokering . allow options of banking like checking and savings account , credit cards certificate of deposits and mortgages and money markets accounts . Such companies offer you options of the best online trading .
Research and Education : Day trading or stock investment is all about keeping alert on the news and having a clear mind , though few people knew about it . It is recommended to get you well educated about the twists and turns of the stock market . Studying past moves and historic analysis may definitely help . Experiences are also a great help . Once you go through thorough research work , brace yourself to get real investment plans .
Get a System work for you : The meaning of system here is to get yourself a broker or brokerage firm through which you can have access to stock exchange . Make a choice , with the amount of the brokerages you want to work with and the facilities you demand . Never count upon the cheapest service as they may not serve you the services that you are in need of . You must always evaluate the worth of services you are demanding .
Decide on the Rules : It is a fact that every market has its own set of rules and notions of trade . You have to work on the buying and selling rules of stock market , watch the market and go for paper trade . Paper trade is the theoretical buying and selling of the stocks that tends you prove your profitability skills before you actually enter to some dine. It gathers you better speculation skills and gets you experience , through theoretical .
Get through the Formalities of the Broker : There is some paperwork that you have to work on to get the real trade . Get yourself signed to the firm registered with one or more stock exchanges . Proceed with the initial deposits that are to be made for trading accounts and get the needed softwares installed to your PC for online trading .
Maintain a Balanced Portfolio : Be prepared for certain setbacks and losses . However , consistency and break-free moves get you to maintain a balanced portfolio that is beneficial in long run . Also , steady trading is considered to be more meaningful rather than flying in the air right from the start . Inexperienced flight may get you nowhere in the long run . Hence , balancing your trading speed you’re your portfolio is considered to be wise .
Seek for all the opportunities including Index Funds : Diversifying your investments is the best way to avoid the unbearable losses . It tends to integrate your risks and thus serves as a benefit . Also, index funds are a good option to invest in . They provide a balanced , low-cost way of investing and have consistent long-term gains . Hence , a wise selection of stock investment option is considered admirable and well thought decision while investing in stocks . Seeking all opportunities provides you a better range of choices .Online trading is gaining popularity at a rapid pace . Number of known and unknown companies , firms and financial institutions are providing online trading facilities , You only need to register yourself with one of it .
Is Trading through Internet Safe ?
The safety of transactions on internet depends on the encryption system used . The better this transaction system , the more difficult it is for any person to hack this site . Internationally , the best system available today is 128-bit encryption . Secondly, you too can ensure the safety of the transaction online . You normally get a secured user id and password , the secrecy of which is to entirely maintained by you . Thirdly , if the transaction system requires no manual intervention you further improve the safety in the transaction . Among Indians sites , very few are fully integrated online trading sites . This enables the elimination of the possibility of any manual intervention , which means orders are directly sent to the stock exchange ensuring that you get the best and the right price .
What about the Security of My Money , Demat Shares and Transaction Documents ?
In systems where the broking , banking and demat accounts are completely integrated , your money remains in your own bank account , and does not get transferred to the broker’s pool account. The experience of trading through Internet depends a great deal on the type of product offered by the site . Say for example , one of the issues bothering you may be getting tired of the paperwork involved after every trade , in writing cheques . You would open then seek a system that eliminates these processes . In online trading sites the greater the back-end integration of the system , the greater the amount of work the sites do for you , therefore greater the convenience available to you .
In big financial institutions your broking account , bank account and the Demat account are linkee electronically . So when you punch in a buy or a sell order , the system checks the funds / shares availability and automatically credits /debits the account once the order is executed by the exchange .
But I am not comfortable with Internet , or with Finance , how can Online Trading be easy for me ?
Contrary to common perceptions , trading through Internet does not require any expertise in working on the computer , or any special financial skills . You could try the demo of online trading sites to find out why others like you , with little or no knowledge about Internet or finance , have switched on to online trading . Or you could attend the demonstrations sessions held by such websites in your city .
Is Trading through Internet a costly affair ?
The convenience provided by online trading is even then worth the costs involved . And online trading sites are not that costly . For example , a trader can trade shares on margin at rates as low as 0.10% and if one wishes to trade in cash , then rates applicable are as low as 0.4% However , it is important to compare various online trading sites on brokerage rates , inclusive of all sub-charges .
Discount stockbrokers allow you the flexibility of creating your own portfolio , sharing your money between mutual funds , bonds, stocks options and exchange traded funds . Most of the companies that are into discount brokering . allow options of banking like checking and savings account , credit cards certificate of deposits and mortgages and money markets accounts . Such companies offer you options of the best online trading .
Monday, February 16, 2009
Online And Offline
The introduction of the Internet has surprisingly changed our way of life as a society . It has defined the way we o business and the way we correspond . Internet has opened many opportunities for internet trading . The financial industry revolves around internet . Every thing is just a few clicks away . This makes online trading most convenient . But there are still investors who prefer the old fashion of offline trading and mainly prefer offline trading for security reasons .
Internet has introduced a way for consumers to manage their money online . Not to mention , internet has transformed the way investment companies operate their business and has made it easy for private investors to gain straight access to a range of different markets and online tools that were at one point reserved by the use of investment professionals . Consumer investing and online trading has dramatically changed over last decade . Online trading dynamically continues to be redefined . Services has expanded to include integrated management of additional financial accounts . Not to mention , it has subsequently expanded in conjunction with ground – breaking improvements to the traditional trading interface , such as telephone interface systems .
Of course , online trading has many pros . There are several wonderful reasons to invest online and consider online trading .
1. Money saving opportunities : The amount of money you save depends primarily on the online brokerage firm that you choose . No two firms are same . There may be different regulations , similar to bank regulations . There are minimum deposits required that must be maintained . As mentioned above , this will depend on th online brokerage firm .
2. Instant online access : You can gain instant access to your account , the value of your portfolio updates immediately before your eyes .
3. Enter online trades at anytime : You can enter online trades at any time from anywhere . This is very convenient if you live in a different time zone than the country you are trading in . Not to mention , it is especially fit for the investors with the busy schedules .
4. With online trading you are in charge : You are in control of your investments . No sales pitches and no haste . You decide where to invest your money .
Nevertheless , with all the convenience of online trading there are still investors who prefer the old fashion way of offline trading . Offline trading has lost some popularity but it is still the main form of investing . Offline trading offers many benefits as well .
1. The one benefit that an investor appreciates the most is that they are not alone when making investment decisions .
2. There are experienced and professional brokerage companies that handle their investments for them .
3. Investors are not faced with the challenge of making these vital investment decisions , especially if they do not have the experience necessary to make the appropriate investments .
4. Also , there is someone there to answer any questions that may cause concerns .
Not to mention , with offline trading mistakes are less likely to take place . No one wants to throw their money away or stand by and watch someone else thrown their money away . It may be wise to hire a professional to assist you in making the correct investment decisions if you feel you lack the knowledge necessary .
Internet has introduced a way for consumers to manage their money online . Not to mention , internet has transformed the way investment companies operate their business and has made it easy for private investors to gain straight access to a range of different markets and online tools that were at one point reserved by the use of investment professionals . Consumer investing and online trading has dramatically changed over last decade . Online trading dynamically continues to be redefined . Services has expanded to include integrated management of additional financial accounts . Not to mention , it has subsequently expanded in conjunction with ground – breaking improvements to the traditional trading interface , such as telephone interface systems .
Of course , online trading has many pros . There are several wonderful reasons to invest online and consider online trading .
1. Money saving opportunities : The amount of money you save depends primarily on the online brokerage firm that you choose . No two firms are same . There may be different regulations , similar to bank regulations . There are minimum deposits required that must be maintained . As mentioned above , this will depend on th online brokerage firm .
2. Instant online access : You can gain instant access to your account , the value of your portfolio updates immediately before your eyes .
3. Enter online trades at anytime : You can enter online trades at any time from anywhere . This is very convenient if you live in a different time zone than the country you are trading in . Not to mention , it is especially fit for the investors with the busy schedules .
4. With online trading you are in charge : You are in control of your investments . No sales pitches and no haste . You decide where to invest your money .
Nevertheless , with all the convenience of online trading there are still investors who prefer the old fashion way of offline trading . Offline trading has lost some popularity but it is still the main form of investing . Offline trading offers many benefits as well .
1. The one benefit that an investor appreciates the most is that they are not alone when making investment decisions .
2. There are experienced and professional brokerage companies that handle their investments for them .
3. Investors are not faced with the challenge of making these vital investment decisions , especially if they do not have the experience necessary to make the appropriate investments .
4. Also , there is someone there to answer any questions that may cause concerns .
Not to mention , with offline trading mistakes are less likely to take place . No one wants to throw their money away or stand by and watch someone else thrown their money away . It may be wise to hire a professional to assist you in making the correct investment decisions if you feel you lack the knowledge necessary .
Wednesday, February 11, 2009
Money From Your Fund
Examine Sector Weightings and the Fund’s Concentration : The funds that have large stakes in just one or two sectors are expected be more volatile than the evenly diversified funds . A concentrated portfolio may also get more successful if its stocks are performing better . You may add a concentrated fund in your portfolio but mostly the concentration should be in a diversified fund which is more predictable . Invest in a few funds and develop a plan : But it does not mean you should invest only in one fund . Even though the funds are diversified , many funds go though a few years of poor performance . When you invest only in one fund , you might lose heavily . On the other hand , investing in too many funds may lead to duplication of many securities and a portfolio with no focus . For long term financial goals , equities are the best option .
Keep it Simple :
To keep the selection of the funds simple , you should stick with well diversified and well established equity funds , an index fund for equity exposure and a floating rate bond fund for fixed income exposure . For long term perspective , equities are the best performing asset class. One should normally stay away from speciality and sector funds because they have a huge risk associated .
Know Your Portfolio & Ignore the hot stocks and funds:
Avoid going for impulsive purchase. It is wise to invest in a fund that invests in stocks that make up an index. This way , you will do no worse than the market. Since , in the long run , markets have a tendency to go up , even your investment will move the same way . But in case you are a little more active , you can go for established ‘value’ funds that invest in undervalued securities .
Invest Regularly :
Investing a little bit of more money every month is the surest way to reduce the risk of investing . Investing on a regular basis is the key to success . Irrespective of the fund you choose , the reality is that its value will keep going up and down . One can expect a reasonable price in long term by investing on a regular basis .
Diversification is suitable for many Investors :
It is generally true that stocks perform better than any other liquid investment . So, in case of long term horizon and if you are comfortable with the risks associated with the stock market , you can think of investing in the stock funds . But in case you are slightly conservative , you may think of investing in different asset classes such as stocks , bonds , etc. The key challenge is to chose the right fund .
Assess Performance Approximately :
Past performance is not necessarily a good indicator of future results and this fact should be kept in mind every time one considers investing in fund . Avoid investing in a concentrated fund and focusing on short term returns . Generally while choosing a fund , one should look for above average performance over a period of time .
Benefits of Investing in Mutual Funds :
Mutual funds offer several advantages to the investors :
Affordable : Almost everyone can buy mutual funds . Mutual Funds generally provide an opportunity to invest with less funds as compared to other avenues in the capita market . Even the ancillary fee which one has to pay in the form of brokerages , custodian , etc. is lower than other options and is directly linked to the performance of the scheme .
Keep it Simple :
To keep the selection of the funds simple , you should stick with well diversified and well established equity funds , an index fund for equity exposure and a floating rate bond fund for fixed income exposure . For long term perspective , equities are the best performing asset class. One should normally stay away from speciality and sector funds because they have a huge risk associated .
Know Your Portfolio & Ignore the hot stocks and funds:
Avoid going for impulsive purchase. It is wise to invest in a fund that invests in stocks that make up an index. This way , you will do no worse than the market. Since , in the long run , markets have a tendency to go up , even your investment will move the same way . But in case you are a little more active , you can go for established ‘value’ funds that invest in undervalued securities .
Invest Regularly :
Investing a little bit of more money every month is the surest way to reduce the risk of investing . Investing on a regular basis is the key to success . Irrespective of the fund you choose , the reality is that its value will keep going up and down . One can expect a reasonable price in long term by investing on a regular basis .
Diversification is suitable for many Investors :
It is generally true that stocks perform better than any other liquid investment . So, in case of long term horizon and if you are comfortable with the risks associated with the stock market , you can think of investing in the stock funds . But in case you are slightly conservative , you may think of investing in different asset classes such as stocks , bonds , etc. The key challenge is to chose the right fund .
Assess Performance Approximately :
Past performance is not necessarily a good indicator of future results and this fact should be kept in mind every time one considers investing in fund . Avoid investing in a concentrated fund and focusing on short term returns . Generally while choosing a fund , one should look for above average performance over a period of time .
Benefits of Investing in Mutual Funds :
Mutual funds offer several advantages to the investors :
Affordable : Almost everyone can buy mutual funds . Mutual Funds generally provide an opportunity to invest with less funds as compared to other avenues in the capita market . Even the ancillary fee which one has to pay in the form of brokerages , custodian , etc. is lower than other options and is directly linked to the performance of the scheme .
Monday, February 2, 2009
History Of Stock Market
IN THE USA : History of stock market trading in the United States can be traced back to over 200 years ago . Then , the colonial government decided to finance the war by selling bonds , government notes promising to pay out at profit at a later date . At around the same time , private banks began to raise money by issuing stocks , or shares of the company to raise their own money . This was a new market , and a new form of investing money , and a great scheme for the rich to get richer . A little further on the history timeline , more specifically in 1792 , a meeting of twenty four large merchants resulted into a creation of a market known as the New York Stock Exchange . At the meeting , the merchants agreed to meet daily on Wall Street to daily stocks and Bonds .
Further in history , in the mid 1800’s , the United States was experiencing rapid growth . Companies needed funds to assist in expansion required to meet the new demand . Companies also realized that investors would be interested in buying stock i.e., partial ownership in the company . History has shown that stocks have facilitated the expansion of the companies and the great potential of the recently founded stock market was becoming increasingly apparent to both the investors and the companies .
By 1900 , millions of dollars worth of stocks were traded on the street market . In 1921 , after twenty years of street trading , the stock market moved indoors . History brought us the Industrial Revolution , which also played a role in changing the face of the market . New form of investing began to emerge when people started to realize that profits could be made by re-selling the stock to others who saw a value in a company . This was a beginning of the secondary market , known before , because it was now fueled by highly subjective speculation about the company’s future .
This was the pretext for the appearance of such stock market giants as NYSE . History books tells us that the reason why NYSE is so highly regarded among stock markets is that they only trade in the very large and well-established companies . I acted as a more stable investment alternative for people interested in throwing their capital into the stock market arena . The smaller companies making up the stock market formed into what eventually became the American Stock Exchange . Contrary to the 80-year old history , today NYSE , AMEX and hundreds of other exchange markets make a significant contribution to the national and global economy .
The growth in the number of the market participants led the government to decide that more regulation of the stock market was needed to protect those investing in the stock . History was made in 1934 , when following the Great Crash , Congress passed the Securities and the Exchange Act . This act formed the securities and the Exchange Commission , just like SEBI in India , which through the act and succeeding amendments , regulates the American Stock market with the help of the exchanges . It also includes overseeing the requirements for a company to issue a stock shares to the public and ensures that the company offers relevant information to potential investors . SEC also oversees the daily actions of market exchanges and how they trade the securities offered .
Although historically , investing in the stocks was a “ hobby “ for the rich , an average person too soon came to realize the value of the investment as compared to traditional assets like land or a house .
IN INDIA : The working of the stock exchanges in India started in 1875 . BSE is the oldest stock market in India . The history of the Indian stock trading starts with 318 persons taking the membership in the Native Share and Stock Brokers Association , which we now know by the name of Bombay Stock Exchange , or BSE in short . In 1965 , BSE got permanent recognition from the Government of India . National Stock Exchange comes second to BSE in terms of popularity . BSE and NSE represent themselves as synonyms of Indian stock market . The history of Indian stock market is almost the same as the history of BSE .
Many foreign institutional investors are investing in Indian stock markets on a very large scale . The liberal economic policies pursued by successive Governments attracted foreign institutional investors in a large scale .
India , after United States hosts the largest number of listed companies . Global investors now ardently seek India as their preferred location for investment . Once viewed with skepticism stock market now appeals to middle class Indian also . Many Indians working in the foreign countries now divert their savings to stocks . This recent phenomena is the result of opening up of online trading and diminished interest rates from the banks . The stockbrokers based in India are opening offices in different countries mainly to cater the needs of Non-Resident Indians . The time factor also works for the NRIs . They can buy or sell a stock online after returning from their work places .
Further in history , in the mid 1800’s , the United States was experiencing rapid growth . Companies needed funds to assist in expansion required to meet the new demand . Companies also realized that investors would be interested in buying stock i.e., partial ownership in the company . History has shown that stocks have facilitated the expansion of the companies and the great potential of the recently founded stock market was becoming increasingly apparent to both the investors and the companies .
By 1900 , millions of dollars worth of stocks were traded on the street market . In 1921 , after twenty years of street trading , the stock market moved indoors . History brought us the Industrial Revolution , which also played a role in changing the face of the market . New form of investing began to emerge when people started to realize that profits could be made by re-selling the stock to others who saw a value in a company . This was a beginning of the secondary market , known before , because it was now fueled by highly subjective speculation about the company’s future .
This was the pretext for the appearance of such stock market giants as NYSE . History books tells us that the reason why NYSE is so highly regarded among stock markets is that they only trade in the very large and well-established companies . I acted as a more stable investment alternative for people interested in throwing their capital into the stock market arena . The smaller companies making up the stock market formed into what eventually became the American Stock Exchange . Contrary to the 80-year old history , today NYSE , AMEX and hundreds of other exchange markets make a significant contribution to the national and global economy .
The growth in the number of the market participants led the government to decide that more regulation of the stock market was needed to protect those investing in the stock . History was made in 1934 , when following the Great Crash , Congress passed the Securities and the Exchange Act . This act formed the securities and the Exchange Commission , just like SEBI in India , which through the act and succeeding amendments , regulates the American Stock market with the help of the exchanges . It also includes overseeing the requirements for a company to issue a stock shares to the public and ensures that the company offers relevant information to potential investors . SEC also oversees the daily actions of market exchanges and how they trade the securities offered .
Although historically , investing in the stocks was a “ hobby “ for the rich , an average person too soon came to realize the value of the investment as compared to traditional assets like land or a house .
IN INDIA : The working of the stock exchanges in India started in 1875 . BSE is the oldest stock market in India . The history of the Indian stock trading starts with 318 persons taking the membership in the Native Share and Stock Brokers Association , which we now know by the name of Bombay Stock Exchange , or BSE in short . In 1965 , BSE got permanent recognition from the Government of India . National Stock Exchange comes second to BSE in terms of popularity . BSE and NSE represent themselves as synonyms of Indian stock market . The history of Indian stock market is almost the same as the history of BSE .
Many foreign institutional investors are investing in Indian stock markets on a very large scale . The liberal economic policies pursued by successive Governments attracted foreign institutional investors in a large scale .
India , after United States hosts the largest number of listed companies . Global investors now ardently seek India as their preferred location for investment . Once viewed with skepticism stock market now appeals to middle class Indian also . Many Indians working in the foreign countries now divert their savings to stocks . This recent phenomena is the result of opening up of online trading and diminished interest rates from the banks . The stockbrokers based in India are opening offices in different countries mainly to cater the needs of Non-Resident Indians . The time factor also works for the NRIs . They can buy or sell a stock online after returning from their work places .
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