In continuation to part 1....suppose the market goes red and falls 110 points and same trend is observed by the RIL scrip..at one given point, the price of RIL in BSE is Rs.2,560 and in NSE it is Rs.2,585 and ajay settles the transaction....
he sells in @ Rs.2,560 and buys in @ Rs.2,585 thereby giving him a loss of Rs.25 per share, i.e. Rs.2,500, considering the complete transaction, Ajay makes a cool profit of Rs.2,000 (Rs.4,500 - Rs.2,500)
Isn't that cool..earn profit, irrespective of the market movement..however, I will re-iterate the ground rules..speed, accuracy and calculation...start the transaction in the morning when there is difference observed in the NSE and BSE rates and settle it when it suits your caluclation...
chao..happy trading....any questions..keep me posted
Wednesday, November 21, 2007
Riskless Trading (Part I)
Arbitrage...thats the name of riskless trading..however, before one can take up arbitrage to increase his income there are certain ground rules which need to be strictly followed and those are speed, accuracy and calculation...wondering what these need to do with riskless trading...no need to have all the gyan about equities, company ratios, profitability, major events or anything..the next question which will come up in your mind...is that speculation..my answer would be no..it way different from it
Arbitrage means buying shares in BSE and selling them in NSE & vice-versa and later on squaring them off before the trading day closes. Lets take an example..suppose Ajay buys 100 shares of RIL @Rs.2,600 from BSE at the same time the price of RIL is Rs.2,645 in NSE, so he sells his stock at the same moment..making a cool difference of Rs.45 per share, i.e. Rs.4,500
Step-2: Now he needs to square-up this transaction, i.e., he needs to sell 100 shares of RIL in BSE and buy 100 shares in NSE
Step-3: Assume if the market goes up..by 85 points and there is same trend in the RIL scrip..the price of RIL at one given moment in BSE is Rs.2,635 and in NSE is Rs.2,655...at that very moment Ajay makes the transaction...giving a negative of Rs.20 per share, i.e.Rs.2,000
Thereby, at the end of the day Ajay makes a cool profit of Rs.2,500
Wondering what if market goes red....coming up
Arbitrage means buying shares in BSE and selling them in NSE & vice-versa and later on squaring them off before the trading day closes. Lets take an example..suppose Ajay buys 100 shares of RIL @Rs.2,600 from BSE at the same time the price of RIL is Rs.2,645 in NSE, so he sells his stock at the same moment..making a cool difference of Rs.45 per share, i.e. Rs.4,500
Step-2: Now he needs to square-up this transaction, i.e., he needs to sell 100 shares of RIL in BSE and buy 100 shares in NSE
Step-3: Assume if the market goes up..by 85 points and there is same trend in the RIL scrip..the price of RIL at one given moment in BSE is Rs.2,635 and in NSE is Rs.2,655...at that very moment Ajay makes the transaction...giving a negative of Rs.20 per share, i.e.Rs.2,000
Thereby, at the end of the day Ajay makes a cool profit of Rs.2,500
Wondering what if market goes red....coming up
Monday, November 19, 2007
Riskless Trading.....Coming up Next
Does anybody have a clue on this...........let me know the keyword....win a fabulous prize
Thursday, November 8, 2007
Friday, October 19, 2007
well done
Very insightful article posted by Abhinav below ....and an excellent idea to start this blog ...Its gonna help a lot of people who are looking to demystify the stock markets and invest their money rationally ....I recommend everyone to contribute and participate with their questions and ideas on how to make this blog site a great success and usefull to millions of people eventually .Lets benifit from the insight Abhinav has and contribute !!!!!!!!!!
Thursday, October 18, 2007
SENSEX FALL
Everybody must be thinking what triggered the market frenzy..what happened overnight that market lost its weight by more than 1300 pts in 2 days and seen volatility (market movement) of almost 2500 pts...
The short-term correction expectation was mounting as the Sensex moved northward with a phenomenal speed and the trigger for the correction finally came in the form of SEBI's draft paper on Participatory Notes (PN) which is part of Offshore derivative Instrument (ODI)released on 16th Oct night. On 17th Oct Sensex lost almost 1700 points (8%) and the NSE 9.5% before trading was shut for an hour. However, as the market reopened, the instant panic subsided as participants realized that there are 18 months to unwind existing positions and the Sensex recovered most of its losses, closing nearly 400 points down for the day.
Understanding Offshore Derivative Instruments (ODI)...
SEBI's proposed curbs on offshore derivative instruments (ODIs). ODI include PNs, equity-linked notes, capped return notes and participating return notes. PNs are financial instruments that help investors and institutions that are not registered with SEBI to invest in domestic securities. Registered FIIs buy the equities on behalf of such investors and issue them PNs. The owner of the underlying equities, therefore, remains anonymous. This makes PNs an attractive proposition as it protects the identity of the investors and give them easier entry and exit options.
More than approx 50% of FII investments are routed through PN's which is not very truested source, hence is the reason why Prime Minister office (PMO) intervened and asked SEBI to take some action against growing PNs.
SEBI Guidelines:
The intent is to regulate the entry of anonymous foreign money into the markets, and while the draft mentions the possibility of banning PN's entirely, the FM has clarified that as of now, only a cap on PN's is intended. Crucially, the report plans to allow use of PN's only to entities that follow the SEBI's Know Your Customer (KYC) regulations, thereby effectively shutting out all anonymous flows.
Possible Implications...
As expected..selling by FII in big way as they tend to perceive SEBIs instructions in negative manner (as always)...short term tumbling in SENSEX..long term fundamentals of the country still remain intact. Hence investors need not get swayed by short-term movements in the market.
SEBI will watch the market for next couple of days and then make any changes to the draft PN policy to control the market situation.
Hey Guys..in case you need any clarification on anything let me know..and also let me know your thoughts on the above article...happy reading..cheers
The short-term correction expectation was mounting as the Sensex moved northward with a phenomenal speed and the trigger for the correction finally came in the form of SEBI's draft paper on Participatory Notes (PN) which is part of Offshore derivative Instrument (ODI)released on 16th Oct night. On 17th Oct Sensex lost almost 1700 points (8%) and the NSE 9.5% before trading was shut for an hour. However, as the market reopened, the instant panic subsided as participants realized that there are 18 months to unwind existing positions and the Sensex recovered most of its losses, closing nearly 400 points down for the day.
Understanding Offshore Derivative Instruments (ODI)...
SEBI's proposed curbs on offshore derivative instruments (ODIs). ODI include PNs, equity-linked notes, capped return notes and participating return notes. PNs are financial instruments that help investors and institutions that are not registered with SEBI to invest in domestic securities. Registered FIIs buy the equities on behalf of such investors and issue them PNs. The owner of the underlying equities, therefore, remains anonymous. This makes PNs an attractive proposition as it protects the identity of the investors and give them easier entry and exit options.
More than approx 50% of FII investments are routed through PN's which is not very truested source, hence is the reason why Prime Minister office (PMO) intervened and asked SEBI to take some action against growing PNs.
SEBI Guidelines:
The intent is to regulate the entry of anonymous foreign money into the markets, and while the draft mentions the possibility of banning PN's entirely, the FM has clarified that as of now, only a cap on PN's is intended. Crucially, the report plans to allow use of PN's only to entities that follow the SEBI's Know Your Customer (KYC) regulations, thereby effectively shutting out all anonymous flows.
Possible Implications...
As expected..selling by FII in big way as they tend to perceive SEBIs instructions in negative manner (as always)...short term tumbling in SENSEX..long term fundamentals of the country still remain intact. Hence investors need not get swayed by short-term movements in the market.
SEBI will watch the market for next couple of days and then make any changes to the draft PN policy to control the market situation.
Hey Guys..in case you need any clarification on anything let me know..and also let me know your thoughts on the above article...happy reading..cheers
Wednesday, October 17, 2007
De-mystifying Mutual Funds
There must be plenty instances when friend of yours must have told you..he got a cool dividend of 100% or 150% on his mutual funds and forces you to move into J mode and you wonder you were such an ass that you never listened to him and invested in the same fund...hang on..think twice, before you invest on any such fund.
100% dividend does not mean that his investments have swollen to twice the size of what he initially invested..look at the following scenario for crystal clarity:
Our dear mote (read as parivesh) invested Rs. 40,000 in HDFC bonds
NAV on Date of purchase = Rs. 40
Number of bonds = 1000 (40, 000/ 40)
After 3 months, when the NAV of fund is Rs.44, the bank declared a dividend of 100%....FYI dividend is always issued on the initial price of MF, which is Rs.10 in 95% of the cases..
Dividend received = 1000 * 10 = Rs. 10, 000
Dividend is non-taxable income, so its not going to impact your annual return..:)
So, how much should be NAV of MF on distribution of dividend.......give it a shot....
It will be Rs.34....remember...dividend is paid out of the NAV of MF...the question which will pop in your mind now will be that its only Rs.4 which you have earned...think again...
Such Mutual Funds are considered as Tax saving funds because of this unique feature..once you receive the dividend you can immediately sell these Mutual Funds and book short term loss on it.....40-34 = Rs 6 per bond...total short term loss of Rs. 6000, this short term loss can be set-off with any short term gains you have..so any people out there who are involved in day trading should always invest in such mutual funds....
So, your total profit will be Rs. 4000 increase in NAV + Rs. 6000 tax saving...which means you almost save a whopping Rs. 24000...awesome na..
let me know..if this helps you in understanding Mutual Funds
100% dividend does not mean that his investments have swollen to twice the size of what he initially invested..look at the following scenario for crystal clarity:
Our dear mote (read as parivesh) invested Rs. 40,000 in HDFC bonds
NAV on Date of purchase = Rs. 40
Number of bonds = 1000 (40, 000/ 40)
After 3 months, when the NAV of fund is Rs.44, the bank declared a dividend of 100%....FYI dividend is always issued on the initial price of MF, which is Rs.10 in 95% of the cases..
Dividend received = 1000 * 10 = Rs. 10, 000
Dividend is non-taxable income, so its not going to impact your annual return..:)
So, how much should be NAV of MF on distribution of dividend.......give it a shot....
It will be Rs.34....remember...dividend is paid out of the NAV of MF...the question which will pop in your mind now will be that its only Rs.4 which you have earned...think again...
Such Mutual Funds are considered as Tax saving funds because of this unique feature..once you receive the dividend you can immediately sell these Mutual Funds and book short term loss on it.....40-34 = Rs 6 per bond...total short term loss of Rs. 6000, this short term loss can be set-off with any short term gains you have..so any people out there who are involved in day trading should always invest in such mutual funds....
So, your total profit will be Rs. 4000 increase in NAV + Rs. 6000 tax saving...which means you almost save a whopping Rs. 24000...awesome na..
let me know..if this helps you in understanding Mutual Funds
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