KNOWLEDGE BASE-INDIAN STOCK MARKET: Indian stock market guides for beginners

Traders accross India and other countries track SGX Nifty price until mid night before US market close. The SGX nifty Index gives an idea about how the Indian Stock Market will open the next day. However, it is not always to be relied on.Sometimes,the market can totally ignore the SGX Index price and take queues from Asian counter parts. SGX nifty is traded in the Singapore stock exchange platform and its a derivative of the Nifty index. The index opens at 8:00 AM Singapore time on all working days and suggests the initial direction of the Indian stock market. Indian residents are not allowed to trade in SGX. Since SGX is essentially Nifty futures trading on the Singapore stock exchange, it is not uncommon to consider its effects on the Indian markets and vice versa. The movement of the SGX Nifty is a very good starting point for the Indian stock exchange. This is possible primarily due to the trading hours. While the Indian CNX Nifty trades for six and a half hours on the NSE (9:15 a.m. – 3:30 p.m.), the SGX Nifty trades for 16 hours a day, from 6:30 a.m. to 11:30 p.m. IST. One can only imagine the magnitude of fluctuations and economic changes this could bring about. Due to its long hours of trading, it is affected by the world economic cycles and global political events. Professional traders and Investors find it extremely useful for their hedging requirements. The direction of the SGX Nifty is a guiding light for the Indian Investors. It can be inferred that if the SGX Nifty is 30 points positive then the Indian markets may open on a higher note. Same is true for the reverse case as well. Depending on SGX Nifty, intraday traders and smart traders can either take up long positions or short positions. This is an excellent head start to the day.

The best way to start is to design an investment plan to suit your individual circumstances and regularly monitor the same. As you begin and travel on your financial expressway, these ten lessons should ensure that you remain on track and keep achieving your financial goals on the way.


Define your starting point – What are:
Your resources?
Your risk tolerance?
Your time horizon?
Your goals?

Risk is inevitable – Manage it
Once you decide to put your money to build long-term wealth, you have to decide, not whether to take risk, but what kind of risk you wish to take. Determining your risk appetite involves measuring the impact of a loss on your financial health - and mental well being too.

Money in a savings account is safe. But inflation will erode its’ value, a risk that would almost ensure your failure to reach your goal of long-term wealth.

On the other hand, investment in stock market may be risky over the short-term, but should provide consistent and remarkable growth over the long term.

Start early – Benefit from compounding
There is no truth to statements like ‘I am too young to start saving’.

For example, if you want to be crorepati by 45, you would need to invest only Rs.1.6 lakh per year if you start at the age of 25 (assuming 10% returns p.a.). But if you start at the age of 35 you will need to invest Rs.5.7 lakh per year to achieve your ‘crorepati at 45’ objective.

If you start saving and investing early, it will set the stage for significant financial growth later in your life.

Have realistic expectations – Greed is bad
Most people invest in stocks and expect them to double in quick time. If you want to double your money, either buy a lottery or go to a casino (but be prepared to lose everything). Stock market is not gambling.

The market is ultimately a reflection of economic growth. As such one needs to align one’s expectation of returns in line with the expected GDP growth. Compare the performance of your portfolio with relevant benchmark indices and develop realistic expectations.

Expecting unreasonable returns will surely cause disappointment, leading to excessive risk-taking.

Invest regularly – Use time not timing
Market timing is impossible. You may be lucky once or twice but history has not produced a single investor who has made money regularly by timing the market.

Don’t panic when the market is dropping and don’t become greedy when prices are rising. Emotions can be the greatest enemy to your long-term investment plan. History has shown that when most investors are selling, you may have been better off buying.

Stay Invested – Be a marathon runner
The markets have seen lots of ups and downs, but history shows that over time the value of a well-diversified portfolio will increase. That’s because prices don't rise every day – they spurt only during a few short intervals of time.

Stay invested for longer periods. It will keep you from making common mistakes such as timing the market, picking bad stocks, speculating on stocks that are worthless, investing on borrowed money, trying to make a killing in some fad-of-the-day stock, etc.

The reason most people don't get rich with stocks is that they don’t stay in long enough.

Don't churn your investments – It only increases costs
Don’t buy stocks. Buy businesses and that too after due research. And since businesses generally don’t change fortunes overnight, there is no need to get in/out frequently as and when some short-term events play out in the market.

Too-frequent trading cuts into the investment returns more than anything else. Remember that the only person who makes money in regular churning is your broker.

Asset allocation – Each investment class is important
Build a portfolio that is diversified among different types of investments. Because different sectors of the market move at different times in different patterns, asset allocation tends to reduce the risk of huge losses and improves the chances of stable returns. Lack of a well-diversified portfolio, would leave you vulnerable to fluctuations of a particular investment.

However, remember not to over-diversify and own too many investment products – more so if the corpus is small – resulting in higher fees relative to the corpus size. Always seek to maintain a balance between the two.

Sell your losers – Hold the winners
Historically it is seen that investors book profits by selling the stocks, which have appreciated, but continue to hold onto stocks that have declined, in hopes of a bounce back. This one single fact has been the reason why most investors don’t get the true benefit of the markets.

While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important that one should be honest and book a loss, else future losses may even be greater.

In both cases, judge the companies on their merits according to your own research. You will never have a tenbagger if you simply sell everything that has say doubled or tripled.

Hot tips usually burn your investments – A them
Relying on so-called hot-tips from someone, be it your friend, broker, neighbor or anyone else, is akin to gambling. Sure, you may sometimes be lucky with tips, but they will never make you an informed investor, which is what you need to be to be successful in the long run.

Focus on the future of the company whose stocks you plan to acquire and not on the share price or some hot news. If you’ve got some information, chances are that so have many others and so the information is already factored into the market price.

Taxes are important - But not that important
The primary goal of investing is long-term growth of your money through sound investment decisions. Tax implications are important, and you should always try to minimize taxes thereby maximizing your after-tax returns. But putting taxes above all else can often lead to poor decisions.

For instance, people invest in insurance because it gives tax sops. But in the process they forgo opportunities of earning good returns and end-up compromising on the achievement of their financial objective.

Keep the above rules in mind and chances are that you will more often than not turn your dreams into reality

For most first time investors, the desire to make as much money as possible is strong, but the desire to play it safe is usually stronger. The problem is that the biggest potential profits lie amongst the biggest possible risk, so how can one get a good return on their investment while minimizing risk as much as possible? This is essentially the one million dollar question when it comes to investing: how to get the most return for the least amount of risk. There isn't any concrete answer, if there was, we would all be filthy rich, and you wouldn't be reading this article because you would be too busy traveling between your six vacation homes. There are, however, a few common sense tips you can follow to help keep risk minimized and your options open. Let's take a look.

If you are new to investing, the first thing you should do is to talk to a financial planner and a stock broker to help you decide exactly what kind of investments you need to make. In today's computer age, it is tempting to follow the instructions of the commercials that we see on television and read in magazines that tell us to open an online stock trading account so we can buy, sell and trade stocks all on our own. While these accounts are great for long time, experienced investors, they can spell disaster for those of us new to the game. The amount of personalized research available through those sites is very limited so figuring out what to buy and what to avoid can be all but impossible. With a stock broker and a financial planner helping you, you can plan out a short term and long term investment strategy that will help guide you when it comes to picking your investments.

Another huge plus of having a stock broker is the ability to bounce investment ideas off of someone. We all get hot stock tips at one time or another, and while there is nothing stopping you from executing a trade on this tip if you trade stocks online, your stock broker can advise you to put the breaks on if he or she has heard some insider information that says that your trade is a bad idea. Since stock brokers work on the "inside" they are often privy to information that the general public isn't, and that private information is the difference between making money on the stock market and losing your shirt.

You can also help to minimize risk by learning what you can about investing through the print media and online. Even if you don't have an account on one of the top stock trading websites, they offer good stock breakdowns and breaking news that can help teach you about trading stock. While your broker is asked many times to do the heavy lifting, learning what you can about investing can help you make wise decisions.

If you are new to investing, you can help keep your risk down by investing in blue chip stocks and in mutual funds that are based primarily on blue chip stocks. A blue chip stock is a stock from a major, established company that has a history of turning a profit. There are still risks involved in investing in blue chip stocks, but they tend to be the least violate of all stock options.

Finally, common sense can go a long way in minimizing risk. If you get a hot stock tip that requires you to act this very second, take a pass and do some research first. It can make all the difference in the world.

All it takes is one great investment strategy to make a big difference to your lifestyle. But how do you find the right one? You can test various methods yourself or you can learn from others. By learning from others who have trialled and tested methods of investment you will save yourself money and time.

You will find various investment opportunities as you research and most are based on the stock market or on property investments. These investments usually focus on either a short term or a long term plan. Investment strategies can also be based on a return on capitol or an income producing result.

Let's look at one example. In the stock market you can buy and sell shares. Most investors prefer to buy blue chip stock. Most hold these stocks for the longer term, and rely on both capitol growth and income from dividends paid. There are various methods of leveraging these investments to produce greater returns than the expected average. The more leverage used the greater the risk undertaken buy the investor. To get better returns by leveraging is relatively easy, but minimising the risk is hard, unless you understand what risks are involved.

If you use a combination of leveraging derivatives such as options and CFD's, (contract for difference), you can effectively minimize your risk. A combination of both these products at the right mix based on blue chip stocks will produce a higher than average return and minimal risk. The exact formula is a complicated one and is dependent on other factors such as volume, volatility, spreads and market timing factors. Other considerations are based on dividend returns and historical data. The full details of this strategy are far too much to fully explain in this article.

The important consideration is that this strategy is possible with the right information and education. When it is put in place it consistently returns a higher than average return with minimal risk. Get educated about your investment area and explore all the associated derivatives and leveraging possibilities.

There are other areas of investment where the same principles apply. By understanding all the choices available to leveraging and applying combinations of risk reducing products and services, an investment strategy can give higher than average returns whilst maintaining minimal risk. That one great strategy is possible and will increase your investment returns.

Earnings per share (EPS)

The earnings per share (EPS) is a widely-used ratio in stock value and securities analysis. It reflects the profits made per share.

The EPS of a company is calculated by dividing the `net income available for common stockholders' by the `total number of outstanding common stock shares'. The `net income available for common stockholders' is arrived at by deducting the dividends if any paid to the preferred stockholders of the business from the net income of the company.

However, this calculation does not account for any additional stock shares which the company may issue in future. For example, a business corporation may award its managers stock options to buy common stock shares of the company at fixed prices. If in the future the market value of the shares rises over the fixed option prices, the managers could exercise their rights and buy capital stock shares at a bargain price. This may dilute the EPS, as the net income will have to be spread over a larger number of stock shares.

To warn investors of the potential effects of stock options and convertible securities a second EPS is reported by public corporations, which is called diluted EPS

Price to earnings ratio (P/E)

The price to earnings ratio (P/E) is a widely quoted parameter of share value. The share price is divided by the EPS figure. For companies with the same EPS, a higher P/E for one company means its market price is higher, which in turn means that its expected future profitability is better. Comparing the P/E of a company with the industry average gives an indication of how a company is doing vis-à-vis the industry.

Cum-bonus:The share is described as cum-bonus when a purchaser is entitled to receive the current bonus.

ex-bonus shares:A bonus issue is a signal that the company is in a position to service its larger equity. What it means is that the management would not have given these shares if it was not confident of being able to increase its profits and distribute dividends on all these shares in the future.

A bonus issue is taken as a sign of the good health of the company.

When a bonus issue is announced, the company also announces a record date for the issue. The record date is the date on which the bonus takes effect, and shareholders on that date are entitled to the bonus.

After the announcement of the bonus but before the record date, the shares are referred to as cum-bonus. After the record date, when the bonus has been given effect, the shares become ex-bonus.

So how does a stock's price change after a bonus announcement?

Let's take a few recent examples:

The record date for Matrix Labs' 4 for 1 bonus was January 13, 2005. At the time, the stock price was around Rs 2,116.

Ex-bonus, the stock adjusted to Rs 423.

Note: Rs 423 is Rs 2,116 divided by 5, which is entirely appropriate becaause there are now 5 stocks where there used to be 1.

Or take Aftek Infosys, which gave a 1 for 2 bonus on January 27, 2005. The stock was Rs 109, falling to Rs 73 ex-bonus.

Note again how Rs 73 is exactly two-thirds of Rs 109. But while the stock price of Aftek Infosys rose substantially prior to the bonus, Matrix Labs had not.

Glenmark Pharma's 1:1 bonus on March 4 saw the stock correcting from Rs 593 to Rs 296.

Will the price change after a bonus issue?

A bonus issue adds to the total number of shares in the market.

Say a company had 10 million shares. Now, with a bonus issue of 2:1, there will be 20 million shares issues. So now, there will be 30 million shares.

This is referred to as a dilution in equity.

Now the earnings of the company will have to be divided by that many more shares.

Earnings Per Share = Net Profit/ Number of Shares

Since the profits remain the same but the number of shares has increased, the EPS will decline.

Theoretically, the stock price should also decrease proportionately to the number of new shares. But, in reality, it may not happen.

That's because:

i. The stock is now more liquid. Now that there are so many more shares, it is easier to buy and sell.

ii. A bonus issue is a signal that the company is in a position to service its larger equity. What it means is that the management would not have given these shares if it was not confident of being able to increase its profits and distribute dividends on all these shares in the future.

A bonus issue is taken as a sign of the good health of the company.

When a bonus issue is announced, the company also announces a record date for the issue. The record date is the date on which the bonus takes effect, and shareholders on that date are entitled to the bonus.

After the announcement of the bonus but before the record date, the shares are referred to as cum-bonus. After the record date, when the bonus has been given effect, the shares become ex-bonus.

The risk/reward ratio is very important concept that determine the success of a trader.
As a short term trader , we have been taught to set a target entry, exit price and stop loss if the trade goes against us after doing homework on the fundamental and technical indicators in the chart and it is beyond reasonable doubt that we are convinced of the entry. But have we wonder the other side of the trade if the reward justify the amount of risk we are willingly to undertake? of course, all of the traders in the world would love to have their reward to the most and the risk to be the least. The question next is then what is the reasonable reward/risk ratio? A good rule of thumb is to attain a return of three times as much as the amount risked, making the reward/risk ratio 3 to 1, or maybe anywhere between 2 to 1 and 4 to 1.
To attain consistency and profitable trades in the long run ,your rewards must be bigger than your risks over time so that you can make money. I have spent much time studying the phenomenal gains of a trader. Let examine what the secrets behind a successful options trader.

Firstly, he is a very discipline trader who always will not risk more than 5% of his trading capital in any position's. He will factor the odds of a 5 winning trade that make 200% profit and a worst case of 5 loosing trades of 100% after a tight stop loss, in other word, he has in fact only 50-50 chances of winning, but his 5 winner make him 1000% and his 5 loosing trade loss him 500% thereby still giving him a net gain of 500%. A good trader knows that he will not win in every games he plays but the beauty of options is the leverage they provide. It takes only a few winners out of every 10 trades to make him a very happy investor.

In conclusion, it is not the setting of targets and stops based on a predetermined risk/reward ratio. Big targets and tight stops are pointless if the system is a net loser but rather a trading system which have a success rate of a few phenomenal winners over the losers.

The flow of cash through an organization is sometimes compared with the flow of blood through the body. Cash is in continuous circulation through the arteries of the business carrying value to its various organs. If this flow is stopped, or even severely reduced for a time, then serious consequences result.

However, a company can run out of cash even if it is currently generating good profits.

The biggest threat of a cash deficit is that the management of the company may lose its autonomy. An outside agency, such as an unpaid creditor or a bank whose loan is in default, could decide the fate of the company. That fate could be a forced reconstruction or even an involuntary takeover.

The main cash inflows come from sales, that is the payment received from customers in lieu of the goods and services provided by company. This is supplemented by the unused short-term loan facilities, long-term loans and infusion of equity by the promoters.

The main cash out-flows take place in the form of payments to suppliers of raw materials and services, staff salaries/wages, payments of all other operating expenses, interest, tax and dividends, loan repayments and capital expenditure.

The non-operating cash inflows include new equity capital, new long-term loans and sale of fixed assets. The cash flows summary tells a very important part of the story of a business. But, cash flows do not tell the whole story. Business managers, investors in business, business lenders, and many others need to know two other essential things about a business that are not reported in its cash flow summary: the profit earned (or loss suffered) by the business for the period; the financial condition of the business at the end of the period.

The mercurial character of the stock market has led many to believe that share trading is essentially a game of darts. This gross misperception has influenced many first-timers in the stock market to engage in blind, get-rich-quick speculative binges. But, binges like are always laced with financial disasters, and few have survived to see another day in the stock market.

indiabulls seeks to demystify the essence of share trading and provide every investor a long-term perspective of the stock market. It is our firm belief that stock market investing is an intellect-driven exercise that calls for a careful selection of the various options over a long period of time. By taking a long-term view of the investing options, we believe you will be amply rewarded on your investments.

To be a successful investor, it is important that you steer clear of the `herd mentality' and instead base your decisions on well-researched views and reports. In fact, much of this research can emerge from your own understanding of the stock market and the various financial products and services. By taking an active interest in the overall business environment, you will give yourself a strong chance of increasing your financial assets. You will also discover how exciting it is to learn about the fundamentals of the market, the decision-making process in the corporate world, as also the national and international policies that impact the stock market.

A well-informed investor is in a good position to know what his returns are likely to be in the long run. Whereas, a speculative drive can never assure you of long-term financial gains.

Stock markets by their very nature undergo fluctuations of fortunes

As an investor, you need to realize from day one that the stock market moves in cycles. That is, an investment that brings in fabulous returns at one time may bring in altogether different results at some other time. And, you will seldom be in a position to anticipate these changes accurately.

However, if you take a long-term position in your investments, you are fairly insulated from these fluctuations. But, at the same time, share trading is not about holding on to the scrips forever. To rake in the riches, you need to monitor the fluctuations in the market and establish certain trends that shape your portfolio of investments. That is, you need to look at the stock market as a barometer, not a thermometer. Every stock market fluctuation is indicative of the shape of things to come. So, if the stock market hits a low, investors can take it that the market has bottomed out and that recovery is just around the corner. At the same time, a sustained bull run will only mean that the market is no longer safe for investments.

The first sense therefore you need to acquire is that `the worse you feel, the safer the market is; and the better you feel, usually because the news is good, the closer you are to a top.

Zero in on your favorite scrips

For an individual investor, developing a portfolio can be a daunting task as there is a wide cross-section of scrips to choose from at any given point in time. Further, each of these scrips possesses unique traits and performs differently under different sets of conditions.

You can come out of this clutter by devising your own stock screen for developing your portfolio. Your stock screen may be pegged to a few measures, such as the minimum dividends offered by stocks, the minimum net profit margins of companies, etc. Screens can be an effective way to reduce your contenders from thousands of stocks to perhaps dozens. But, let this not be a final word on your investment decisions. You need to do further research on the short listed scrips.

You can begin by studying the profiles of the companies that figure in your list. Ask yourself if you can relate to the products and services of any of these companies. In your list you will discover certain companies that command a high recall value. This can be a further screen for short listing your choice of scrips.

By following these steps, you stand a fair chance of making promising investments. However, this is just a first step in your investment planning. Once you have set your eyes on a select list of companies, you need to monitor all the news that shape the performance of the scrips. For instance, if one of the companies in your list plans to introduce a new product in the market, it would be worthwhile to study the relevant write-ups that have been published on the subject and anticipate the impact the product launch may have in the bourses.

Similarly, if a company announces that it's recalling a product and its stock drops 15 per cent on the news, you might do well to investigate whether the market has overreacted. If so, this could be a good time to invest in the company (providing that it was and is a strong and growing company, with its financial house in order).

But, company news has its own limitations. It may originate from a cocktail party chatter or even a message board that is overflowing with exuberance. However, you could test the veracity of the news by monitoring the information flow in various publications and mediums. Ideally, you should evaluate the news against the financial background of the company. The financials will anyway provide the big picture on the company's health and its likely performance in the stock market.

Much of this information is now available on the Internet. So, once you are online, you can acquire news, financial snapshots and estimates of future earnings of your select companies.

In your research endeavor, we suggest that you focus your attention on the annual report of the companies. The annual report has three main components: the Income Statement, the Balance Sheet and the Statement of Cash Flows.

The Income Statement shows how much money the company made over the last year and its profit margins. The Balance Sheet reveals how much cash, inventories, and debt the company has. And, the Statement of Cash Flows reveals how much money the company is really making, as it works through operations, makes investments, and borrows money.

Moreover, when studying a company's financial statements, you should be able to determine how the company is financing its growth, whether it has taken on too much debt, how much profit it is making on its products and services, and so on. This will give you a fair idea about the company's financial health and how best its compares with its industry peers.

Analyst reports are another valuable source of information on specific companies. Most companies are examined and analyzed by one or more financial analysts. These professionals, most often employees of brokerage houses, write reports that include the analyst's opinion of the stock as well as estimates of future earnings and other projections. Some of the most valuable information in the report are the estimated earnings per share figures. By matching the analyst's quarterly estimates against the quarterly earnings announcements as they come out, you can determine whether the business and its profits per share are meeting, exceeding, or under-performing the analysts' expectations.

Number-crunching isn't the only way you can size up a company and its performance in the stock market. The role of the top management is also critical to the long-term success of individual companies. Therefore, as an investor you would also be well-advised to look at the profile of the top management of the company in focus, track records of the key managers and the internal management policies of the company.

The road map on stock market investing as given above may give a first hand impression that the exercise is arduous and long-winding. But, we believe this groundwork is most essential for a profitable, long-term venture in the stock market. And, of course, we are sure that somewhere along you will realize that it is truly enriching to be on the learning curve while exercising your investment options.

"Most people in India got rich because they chose to do so, and they puRs ued a path to wealth that is wide open to most of the rest of us."

In other words, becoming rich is a matter of choice. Let's look at it. ( Expalined by McKenzie and Lee)

Suppose a 22-year-old college graduate, earning Rs 30,000 a year, makes a one-time Rs 2,000 investment in the stock market. With a 10 percent compounded rate (which is the stock market appreciation over the last 50 yeaRs ), that Rs 2,000 would become Rs 194,000 at age 70. The person on wouldn't be rich; but neither would he have sacrificed much. Suppose our 22-year-old was more serious about becoming rich and invested Rs 2,000 each year. At age 70, his wealth would exceed Rs 2.1 million. Thus, the first step toward being a millionaire is to save consistently. In order to save consistently, you must avoid "irresistible" temptations; make do with less expensive cars and clothing, and cheaper entertainment.

Another factor in becoming rich is education. Graduate from high school and attend college or some other form of post-high school training. But you have to choose your education wisely. TeacheRs can expect to earn half as much over their careers as engineers,so teachers will find becoming rich tougher than engineers.

Among what McKenzie and Lee call auxiliary rules for becoming rich are: marry someone with an equal or higher education, and stay married. Marriage seems to provide a stable institutional setting that promotes greater earnings, which affords greater savings. Married people not only earn more than single people, they also economize on the costs of running their households, which allows for greater savings.

The operative term is marriage, not shacking up. The binding legal contract at the foundation of marriage reflects the couple's personal commitment to each other that gives them added incentives to pool resources. Survey data shows that married couples build up more assets than two single people or couples simply living together.

Becoming a millionaire takes time and requires some risk-taking. If you start out non-rich, don't expect to be rich before you're 50. While you're young, plan to take "reasonable" risks through investment vehicles like index mutual funds (which buy shares of all companies in the Standard and Poor's stock index) or one or more of the 8,000 mutual funds.

McKenzie and Lee point out that the process of becoming rich normally takes decades, sacrifice, dedication and persons everance. Becoming rich is not for everybody. Some people quite rationally may not choose to make the sacrifices of current consumption and enjoyment. Nothing's wrong with that. What the authors stress is that it's one thing to make a conscious choice not to pursue great wealth, and another not to know the choice exists.

McKenzie and Lee demonstrate that greater wealth is possible for most Americans. That's a vital point, particularly for black Americans whose political leaders preach that they can't make it because of discrimination.

The fact that 4 percent, nearly 11 million Americans, are millionaires, most starting out with little or nothing, points to one aspect of America's greatness: By knowing where a person on ended up, it's a risky proposition to speculate about where he began....continue ( how to become Rich)

New Delhi - India's commodity markets regulator said Thursday the latest suspension of trading in four key commodities won't lower their prices in the near term, despite the government's best efforts.

"This is more of a cosmetic decision as commodity futures have never been responsible for the rise in prices and hence, should not been seen as helping in bringing them down," B C Khatua, chairman of the Forward Markets Commission (FMC), told Dow Jones Newswires.

After Wednesday's suspension of trading in soybean oil, rubber, potato and chickpeas, volumes on the National Commodity and Derivatives Exchange, the National Multi Commodity Exchange and the National Board of Trade would be severely hit as the four suspended commodities constituted the bulk of volumes on these exchanges, he said.

The FMC suspended futures trading in these commodities as of close of trade Wednesday, under instructions from the Central government. "We will strive to resume commodity futures trading in all commodities within four months," Khatua said.

Market for trading bulk and basic good like grain, edible oil, rubber, cotton, metals, etc. Certain special items like tea and coffee are traded in auctions with inspection facilities for the goods.

"You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making, or whatever it may be. And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it."Warren Buffett"

The Oracle of Omaha – Investing since Childhood

About Buffett’s Personal Life

Warren Edward Buffett was born on August 30, 1930. The only boy, he was the second of three children, and displayed an amazing aptitude for both money and business at a very early age. His father was a stock broker turned Congressman.

In 1947, a seventeen year old Warren Buffett graduated from High School. It was never his intention to go to college; he had already made $5,000 delivering newspapers (this is equal to $42,610.81 in 2000). His father had other plans, and urged his son to attend the Wharton Business School at the University of Pennsylvania. Buffett stayed two years, complaining that he knew more than his professors. When Howard was defeated in the 1948 Congressional race, Warren returned home to Omaha and transferred to the University of Nebraska-Lincoln. Working full-time, he managed to graduate in only three years.

Buffett married Susan Thompson in 1952. They had three children, Susie, Howard, and Peter. The couple began living separately in 1977, though they remained married until her death in July 2004. His daughter Susie lives in Omaha and does charitable work through the Susan A. Buffett Foundation and as a national board member of Girls, Inc. On his 76th birthday Buffett married his longtime companion, Astrid Menks, who had lived with him since his wife's departure

An Investor by birth
Warren showed an Investing aptitude since his early childhood. He was a born Investor though he refined his Investing sense under stalwarts like Benjamin Graham.

As a boy, irrespective of his family background, he delivered newspapers to make extra money and this probably sparked his interest in the media where he has made several successful investments including the Washington Post Company, a stock that has made him a lot of money and which he vows never to sell.

At the age of 13, Buffett filed his first income tax return, deducting his bicycle as a work expense. At the age of 15, Buffett and a friend spent $25 to purchase a used pinball machine, which they placed in a barber shop. Within months, they owned three machines in different locations.

Association with Benjamin
Buffett enrolled at Columbia Business School after learning that Benjamin Graham and David Dodd, two well-known securities analysts, taught there. Buffett graduated and wanted to work on Wall Street.

Buffett offered to work for Graham for free but Graham refused. He purchased a Texaco gas station as a side investment, but that venture did not work out as well as he had hoped. Meanwhile, he worked as a stockbroker. He finally got the job with Benjamin Graham’s firm and, as he generously acknowledges, learned a lot about stock investment from The Master.

Graham retired and folded up his partnership. Since leaving college six years earlier, Buffett's personal savings grew from $9,800 to over $140,000. He returned home to Omaha and created Buffett Associates, Ltd., an investment partnership.

Berkshire Hathaway
In 1962, Buffett discovered a textile manufacturing firm, Berkshire Hathaway, that was selling for under $8 per share. Through his partnership, Buffett eventually purchased 49% of the outstanding shares. Buffett maintained BH's core business of textile milling, but by 1967 was expanding into the insurance industry and other investments.

Berkshire first ventured into the insurance business with the purchase of National Indemnity Company. In the late 1970s, Berkshire acquired an equity stake in the Government Employees Insurance Company (GEICO), which forms the core of its insurance operations today (and is a major source of capital for BH's other investments). In 1985, the last textile operations (BH's historic core) were shut down.

Berkshire Hathaway , a massive holding company headquartered in Omaha, Nebraska, USA, that oversees and manages a number of subsidiary companies. Berkshire Hathaway's core business is insurance, including property and casualty insurance, reinsurance and specialty nonstandard insurance. The Company averaged a phenomenal 25%+ annual return to its shareholders for the last 25 years while employing large amounts of capital and minimal debt.

Warren Buffet’s Value Investing principles

The business the company is in should be simple and understandable.

The firm should have a consistent operating history, manifested in operating earnings that are stable and predictable.

The firm should be in a business with favorable long term prospects.

The managers of the company should be candid. As evidenced by the way he treated his own stockholders, Buffett put a premium on managers he trusted. The managers of the company should be leaders and not followers.

The company should have a high return on equity. Buffett emphasizes return on equity (ROE), a key measure of a company's profitability. He prefers to invest in companies where he can confidently forecast future ROEs at least 10 years out. He is particularly fond of firms that don't require a lot of capital, as they tend to produce much higher returns on equity.

Consistently Strong Free Cash Flow. Buffett also seeks companies with significant free cash flow. Always mindful of the risks associated with investing, he ensures that his companies have plenty of money left over to invest in their growth after they have paid the bills.

Limited Debt. In the 1990s, Buffett bought insurers Geico and General Re because he liked how the companies limited and managed their debt.Buffett also likes the "float" that insurance companies offer. Policyholders pay premiums up front, but claims are paid out later -- providing insurance companies with a steady stream of low-cost cash to play with. Until policyholders collect on their policies or claims, the company can invest those billions in stocks/bonds or other areas, and who better to invest that money than Buffett himself?

Margin of Safety. If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you'd need.

The popularization of speculative trading activity in the financial markets, partly due to the development of retail trading solutions offered on the internet, has created a new population of traders in the market.

Many novice traders may believe that it is very easy to make money, in trading. However, if these traders manage to generate a sudden substantial return, it can lead them to believe that trading is an easy occupation - and one in which revenue can be quickly generated with little work on the part of the trader. For the inexperienced, one good pick can make it seem like market speculation might become the key to success and wealth.

Unfortunately, when these inexperienced speculators overtake this virtual investing environment and decide to start trading live accounts and risking real money on the market, the activity becomes much more complex. In many cases, the days of outstanding day trading performance come to look suddenly and distressingly like old souvenirs - it is an abrupt initiation into the pitiless reality of the financial markets.

One of the method of determining support and resistance levels is to look at a Candlesticks chart and its past price history and then see at what price levels the highs, lows and closes seem to be touching the most. This method of determining support and resistance levels works on any bar chart timeframe--hourly, daily, weekly or monthly. Many times a bunch of highs or lows will be concentrated in a small price area, but not at one specific price. If that's the case, determine that area to be a support or resistance "zone."

Major price tops and bottoms in markets are also major resistance and support levels. Unfilled price gaps (windows) on charts also qualify as very good support and resistance levels. Trendline support and resistance is also very useful. Projecting these trendlines to determine future support and resistance areas is extremely effective.

It's important to note that when a key support level or zone is penetrated on the downside, that level or zone will likely become key resistance. Likewise, a key resistance level or zone that is penetrated on the upside will then likely become a key support level or zone.

Another way to discover support or resistance areas is by looking at "retracements" of a significant price move--price moves that are counter to an existing price trend. These moves are also called "corrections." For example, let's say a market is in a solid uptrend. That uptrend began at the 100 price level and prices rallied to 200. But then prices backed off to 150, only to then turn around and continue to rally higher. This would be considered a 50% retracement of the move from 100 to 200. The 150 level proved to be solid support. In other words, the 50% retracement level proved to be a solid support level because prices dropped by 50% and then moved back higher. The same holds true for downtrends and "corrections" to the upside.

There are a few retracement percentages that work well at determining support and resistance levels. They are as follows: 33%, 50% and 67%. There are also two other numbers called Fibonacci numbers. Those numbers are 38% and 62%. So, these five numbers are the best at determining retracement support and resistance levels.

Finally, support and resistance levels for markets can be determined by "psychological" price levels. These are usually round numbers that are very significant in a market.

There are other methods traders use to determine support and resistance levels, but those mentioned above are few of the most popular.

Setting protective stops is an essential ingredient in any leveraged trading activity. This process can be done physically, by actually placing them in advance with your broker, or mentally, by deciding where a stop should be executed. Physically placing a stop may involve setting an alert with your software and watching the price action very closely. On the other hand, if you set the stop mentally, you may be focusing on one specific market and can immediately execute an order the moment the stop is reached.

The advantage of having the stop in the market is that it will be executed immediately, and there is no second-guessing. The disadvantage of a physical stop is that market makers and locals can see your stops and may try to "go" for them.

The disadvantage of placing a mental stop is that you may change your mind for the wrong reason when the price reaches that particular level. This action could be induced by your fear of taking a loss or your desire to give the price a little more room. For either reason, the change of mind is triggered under the duress of market action rather than objective thinking. Unless you are sure this will not happen and that you will stick to your guns, the mental stop approach is not advisable.

Whichever method you use, the important point is to make sure, when you enter a trade, you know exactly where you are going to get out if things go against you. As time progresses and prices change, the level of the stop is also altered. If you are trading more than one contract, or several hundred shares, there is no reason why you cannot split the stop at different price levels. After all, we are dealing with probabilities, and, if the probabilities are not so great, exposure should be less.

Why You Should Place Stops

There are several advantages to placing stops. First, by the very nature of establishing a stop level that is either physically or mentally entered, you are preparing yourself for the worst. In the case of profit-taking stops, it will be a mental preparation of an optimistic outcome. Quite often, when prices go against you, your emotions become clouded, making an objective decision harder to accomplish.

Placing the stop helps to overcome this problem because the decision to do so will be made when your mind is more equally balanced. If prices move sharply in your direction, it is often accompanied by good news, so good in fact, that it is easy to fall into the trap of believing that the price will continue to trend forever. That, unfortunately, is often the point when the price will reach an extreme.

Another advantage is that a correctly placed stop will usually get you out at a better price than just throwing in a market order. This is because a stop order is executed as a market order, once the stipulated price has been touched. If you are just watching the market and suddenly decide to stop yourself out, it is quite possible that the time delay will result in a far worse fill.

Where to Place Stops

With long positions, the best and most obvious point to place a sell stop is just below support, or to cover a short position above resistance. The terms support and resistance, in this sense, can mean a lot of things. Support, in reference to stops, for instance, may develop at a specified price level. Alternatively, it could be dynamic in the sense of a trendline or moving average acting as a support level. The key is to place a stop just below support, not at it. After all, if the price does not slip below a support level, or rise above a resistance level, the trend is not reconfirmed or reversed, depending on the circumstances.

Open Interest (also known as Open Contracts or Open Commitments) refers to the number of active or open contracts for any given security. It applies to the futures and options markets but not to stocks.
In the futures market it refers to the total number of contracts long or short in a delivery month or market that has been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.

The open-interest position that is reported each day for a given market shows the increase or decrease in the number of contracts for that day in the form of a positive or negative number.

It is one of the foremost tools for confirming trends and forecasting trend reversals in the futures market.

- Open interest rising along with prices is a bullish indicator that an uptrend is in progress and is likely to be sustained. It shows that new money is entering the market.

- Falling open interest and rising prices is a bearish indicator, suggesting that the rise is being caused by short sellers covering their positions. The upmove is unlikely to be sustained because new buyers are not entering the market.

- Open interest in a sideways market can suggest a breakout in either direction.

- A rise in open interest in a falling market suggests that a downtrend is in place. New money is entering the market through short sellers.

- When both open interest and prices are falling, this suggests that the longs are closing out their positions, indicating a trend reversal and an upward movement in price.

- Static open interest along with rising or falling prices suggests a possible market top or bottom and trend reversal.

Volume is often used along with open interest. Volume refers to the number of contracts that have to have been traded within a given session. Volume precedes price. The higher the volume traded, the more likely a trend will continue. Rising open interest confirms that new money is supporting the prevailing trend.

Using volume and open interest together:

Price Open Interest Volume Forecast

Rising Up Up Bullish (trend confirmation)
Rising Down Down Bearish (possible trend reversal)
Falling Up Up Bearish (trend confirmation)
Falling Down Down Bullish (possible trend reversal)

Introduction

Every Trader goes through the following stages of evolution - Basic market reading - is the market going up or down? Note, that at this stage, very few people think of the third possibility.....that the market could be going sideways. Setting targets for the envisaged move - During this stage the person is happy if the market moves in the envisaged direction and even if the market comes just close to the target but misses it. Getting to know Technical Indicators and Tools, thinking that knowing the tools is the secret of successful trading. During this period, the person is focused on "being right", the mentality is "me against the market", or even, "my forecast is better than yours". The person trades during this period, experiencing both profits and losses, but consistent profits elude him. He is happy every time there is a profit, no matter if it be small and tends to forget about the losses.

Slowly, the Trader moves onto the next plane of evolution, wherein - He starts to think about various possible scenarios....and starts to think in terms of "If-Then-Else". He starts to think in terms of Probability....what are the chances of the IF or the THEN or the ELSE happening. Starts to think in terms of Risk-Reward.

Having mastered this higher plane, the Trader can then move on to the next plane. Thinking in terms of strategy, Managing multiple positions

There are distinct stages of trader evolution: discretionary trader, technical trader, strategy trader. All successful traders have gone through them. It is almost impossible to be a successful trader without going through all of these stages. Every trader usually starts out as a discretionary trader. The amount of money lost generally determines how long it takes the individual to start using technical indicators to make trading decisions. Eventually, as even employing technical indicators fails to move the trader into profitability, the trader moves into the third stage and starts to write strategies based on quantifiable data. It is at this stage that the trader ordinarily starts to make money. Finally, the strategies and money management approaches are refined and the individual becomes successful as a strategy trader.


THE DISCRETIONARY TRADER

A discretionary trader uses a combination of intuition, advice and non-quantifiable data to determine when to enter and exit the market. Discretionary traders are not restricted by a concrete set of rules. If you are a discretionary trader, you can make buy and sell decisions using whatever criteria you deem to be important at the moment. For example, you can use both a combination of hot tips and relevant news stories from DalalStreet, and enter or exit the market based upon this information. If you begin to lose money, you can immediately exit the market and change your trading method. You don't have to use the same techniques day in and day out. It's a very flexible way to trade that you can customize based on what you think the market is going to do at any given moment. Fascinated by the markets, the discretionary trader is ready to put on a trade at a moment's notice. The most uncomfortable part of trading for the discretionary trader is when there is no action. So he will jump on any piece of information, anything that will permit him to take a stab at the market. Above all, he craves the action.

INTUITION & HOT TIPS

The discretionary trader uses several sources for his trading decisions. One is intuition, for example, I see a lot of people in stores, so I think the economy is good, and earning will increase, so the stock market should go up, and I should buy Retail stocks.He usually spends a lot of time talking to his broker. Hot tips are a common way that a discretionary trader gets ideas. A call from his broker or good friend, or a tip from a discussion at a cocktail party are all places the discretionary trader gets his trading ideas.

CRAVES EXCITEMENT

What a discretionary trader loves is the excitement. He loves being in the markets, playing with the big guys. He craves the risk, the excitement of trading, and the gambling rush that he gets from calling his broker and putting in the order to buy. Discretionary traders retain the flexibility of changing their buy and sell criteria from moment to moment, and change they way they trade from minute to minute and day by day. They don't have any discipline, nor do they think they need any. They use their intuition and their gut instinct, and feel justified in doing so. They think, Making money is easy, you just have to be smarter and quicker than the next guy.

It is after enough money has been lost that the discretionary trader in some way stumbles across technical indicators. It may be from the chart book he just looked at where there was a Stochastic Indicator underneath the chart. Or he may have gone to the latest Make a Million Dollars Trading the Stock Market seminar and found out that using the Relative Strength Indicator is the sure way to stock market profits. He thinks, So this is how they do it! These indicators look like magic. They add some rationality to an otherwise irrational trading style. He thinks, This must be how the big money players make the big money they use technical indicators!

DISCOVERS TECHNICAL INDICATORS

Once the discretionary trader discovers technical indicators, he or she incorporates some rudimentary ones into trading, usually as additional justification for making the trade. These newfound technical indicators give the discretionary trader a new lease on trading. Now our trader has a whole new world in front of him the world of technical trading. For a while, this newfound world combines with intuition and the discretionary trader views himself as a strategy trader. He says, I trade a strategy using moving averages and Stochastics with a dash of daily news and tips from my broker. I am now a real objective strategy trader. While the trader may view himself as a strategy trader, this could not be farther from the truth. The discretionary trader's style is still undisciplined, based on newly educated guesses, and he is probably still losing money. For a moment, these technical tools were thought to be the answer, and while they add a little more rationale to his trades, the losses continue to pile up. Despite his continuing angst, our discretionary trader is now on the way to becoming a technical trader.

Above the Market
An order to buy or sell at a price set higher than the current market price of the security. Examples of above the market orders include: a limit order to sell, a stop order to buy, or a stop-limit order to buy.This is a strategy that is often used by momentum traders. For example, a stop order would be placed above the resistance level to buy. Should the security's price break through the resistance level, the investor may be able to participate in the upward trend.

Absolute Breadth Index - ABI
A market indicator used to determine volatility levels in the market without factoring in price direction. It is calculated by taking the absolute value of the difference between the number of advancing issues and the number of declining issues. Typically, large numbers suggest volatility is increasing which is likely to cause significant changes in stock prices in the coming weeks.This tool is classified as a breadth indicator because the number of advancing/declining values are the only values used to create it. This index can be calculated using any exchange, or a subset of an exchange.

Active Investing
An investment strategy involving ongoing buying and selling actions by the investor. Active investors purchase investments and continuously monitor their activity in order to exploit profitable conditions. Active investing is highly involved. Unlike passive investors, who invest in a stock when they believe in its potential for long-term appreciation, active investors will typically look at the price movements of their stocks many times a day. Typically, active investors are seeking short-term profits.

Adding To A Loser
The action of a trader/investor increasing a position in an asset when its price is heading in the direction that's opposite to what the investor/trader desires. This is generally not a wise investment decision because unless the asset begins to move in the desired direction, the investor's losses will increase.An investor might add to a losing position instead of closing it because he or she gets emotionally attached to the asset and has a hard time accepting that it was a bad investment. Once the trade moves substantially in the wrong direction, however, it may be time to consider closing out or re-evaluating the reason for having the position rather than putting more money at risk.

Advance/Decline Index
A technical analysis tool that represents the total difference between the number of advancing and declining security prices. This index is considered one of the best indicators of market movements as a whole. In general, rising values of the advance/decline can be used to confirm the likelihood that an upward trend will continue. If the market is up but there are more declining issues than advancing ones, it's usually a sign that the market is losing its breadth and may be getting ready to change direction.

Accounting Noise
The effect of complex and extensive accounting rules that regulate financial statement reporting and are thought to distort a company's true operating performance.Accounting noise can be seen as either a consequence of necessary rules regarding generally accepted accounting principles or a result of management's attempts to massage the numbers to present a rosier financial picture of the firm.For example, a company that has recently undergone a significant merger may look very unprofitable on the income statement; because the merger may cause serious one-time charges for the company, it may be useful for investors to cut through the accounting noise to get a more accurate picture of the company's prospects. Conversely, an underperforming company could engage in earnings manipulation, creating accounting noise to hide its poor performance.

Air Pocket Stock
When the price of a stock plunges unexpectedly, similar to an airplane when it hits an air pocket.This is almost always caused by shareholders selling because of unexpected bad news.

Arbitrageur
A type of investor who attempts to profit from price inefficiencies in the market by making simultaneous trades that offset each other and capture risk-free profits. An arbitrageur would, for example, seek out price discrepancies between stocks listed on more than one exchange, buy the undervalued shares on the one exchange while short selling the same number of overvalued shares on the other exchange, thus capturing risk-free profits as the prices on the two exchanges converge. Arbitrageurs are typically very experienced investors since arbitrage opportunities are difficult to find and require relatively fast trading. Arbitrageurs also play an important role in the operation of capital markets, as their efforts in exploiting price inefficiencies keep prices more accurate than they otherwise would be.

Asset Play
An incorrectly valued stock that is attractive because its combined asset value is greater than its market capitalization.
This type of stock is called an asset play because the impetus for purchase is the fact that the company's assets are being offered to the market relatively cheap. Typically, investors involved in an asset play will buy these stocks in hopes that there will be price corrections causing the market capitalization to increase and thus lead to a capital gain.

Breakout
A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility. Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support. In practice, a breakout is most commonly used to refer to a situation where the price breaks above a level of resistance and heads higher, rather than breaking below a level of support and heading lower. Once a resistance level is broken, it is regarded as the next level of support when the asset experiences a pullback Most traders use chart patterns and other technical tools such as trendlines to identify possible candidates that are likely to break through a support/resistance level.

Bottom Fisher
An investor who looks for bargains among stocks whose prices have recently dropped dramatically. The investor believes that the recent price drop is temporary and a recovery is soon to follow.A bottom fisher attempts to find stocks that the market has undervalued. Unfortunately, it's difficult to tell the difference between a bargain and a stock that has fallen for a fundamental reason.

Bubble
An economic cycle characterized by rapid expansion followed by a contraction.A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs.A theory that security prices rise above their true value and will continue to do so until prices go into freefall and the bubble bursts.Bubbles form in economies, securities, stock markets and business sectors because of a change in the way players conduct business. This can be a real change, as occurred in the bubble economy of Japan in the 1980s when banks were partially deregulated, or a paradigm shift, as happened during the dotcom boom in the late '90s and early 2000s. During the boom people bought tech stocks at high prices, believing they could sell them at a higher price until confidence was lost and a large market correction, or crash, occurs. Bubbles in equities markets and economies cause resources to be transferred to areas of rapid growth. At the end of a bubble, resources are moved again, causing prices to deflate. Thus, there is little long-term return on those assets.

Bucketing
A situation where, in an attempt to make a short-term profit, a broker confirms an order to a client without actually executing it. A brokerage which engages in unscrupulous activities, such as bucketing, is often referred to as a bucket shop.If the eventual price that the order is executed at is higher than the price available when the order was submitted, the customer simply pays the higher price. On the other hand, if the execution price is lower than the price available when the order was submitted, the customer pays the higher price and the brokerage firm pockets the difference.

Contrarian
An investment style that goes against prevailing market trends by buying assets that are performing poorly and then selling when they perform well.A contrarian investor believes that the people who say the market is going up do so only when they are fully invested and have no further purchasing power. At this point, the market is at a peak. On the other hand, when people predict a downturn, they have already sold out, at which point the market can only go up.Contrarian investing also emphasizes out-of-favor securities with low P/E ratios.

Correction
A reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index. Corrections are generally temporary price declines, interrupting an uptrend in the market or asset.A healthy market will correct from time to time.

Carbon Trade
An idea presented in response to the Kyoto Protocol that involves the trading of greenhouse gas (GHG) emission rights between nations.For example, if Country A exceeds its capacity of GHG and Country B has a surplus of capacity, a monetary agreement could be made that would see Country A pay Country B for the right to use its surplus capacity. The Kyoto Protocol presents nations with the challenge of reducing greenhouse gases and storing more carbon. A nation that finds it hard to meet its target of reducing GHG could pay another nation to reduce emissions by an appropriate quantity.

Capitulation
A military term. Capitulation refers to surrendering or giving up. In the stock market, capitulation is associated with "giving up" any previous gains in stock price as investors sell equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.

Catalyst
Something that initiates or causes an important event to happen. Originally a term used in chemistry for the volatile (active) chemical in a formula.Quite often you will hear someone say that a stock needs a catalyst. This means that the stock needs some good news or a press release to get people interested in the stock again.

Caveat Emptor
Another way to say, "let the buyer beware."In other words, consumers need to know their rights and be vigilant in avoiding scams.

Chasing the Market
Entering or exiting of a trend after the trend has already been well established. Investors are often unaware of the fact that they are chasing the market which can dent the value of a portfolio. This type of investing is often seen as irrational as decisions are often based on emotion instead of careful analysis of the value of the investment.Chasing the market refers to both the entering into highly priced positions after they have rapidly increased and become overvalued as well as the exiting of positions after they have rapidly decreased and become undervalued. During the internet bubble some investors entered the rapidly appreciating sector well after the trend had been established and lost considerable sums when the bubble bust.

Circular Trading
A fraudulent trading scheme where sell orders are entered by a broker who knows that offsetting buy orders, the same number of shares at the same time and at the same price, either have been or will be entered.These trades do not represent a real change in the beneficial ownership of the security.

Coattail Investing
An investment strategy where investors mimic the trades of well-known and historically successful investors. This copycat investing can be very good - why not follow the best? This investing strategy works the best when the money manager or institution being mimicked buys companies with a buy and hold mentality. If the manager is buying the company for a short period of time, the delay between the purchase and the release of the information to the public may render the particular purchase a bad one. However, many money managers buy companies with a buy and hold mindset, including the most successful one of all, Warren Buffett.

Coiled Market
A market that is believed to have the potential to make a strong move in one direction after being pushed in the opposite direction. The idea is that if a market should be headed in one direction based on its fundamentals but is pushed in the other direction, it will eventually make a strong move in the original fundamental direction. This coiled move will often be more substantial than what might have been the case if it had gone in the expected direction to begin with.Coiled markets often arise when the market has been held down artificially. This happens in commodities markets, such as gold and silver. Investors looking to capitalize on coiled markets will use both fundamental and technical analysis to identify markets or specific equities that exhibit the characteristics of a coiled market. The origins of this term relate to the physics of a coiled spring: the more it is compressed, the greater the rebound will be.

Corner A Market
To acquire enough shares of a particular security in order to manipulate its price. This is why people with significant interest in a particular stock are watched very closely by the Securities and Exchange Commission.

Cover
Cover is a general term used in many different instances. For instance, an investors that recently puchased a security will have to cover the puchase by depositing the necessary funds. Or, an investor may wish to cover his/her short position by purchasing the stock. Or, a portfolio manager may wish to cover his/her risk exposure by buying an offsetting position.

Dead Cat Bounce
A temporary recovery from a prolonged decline or bear market, after which the market continues to fall.Ever heard the saying, "Even a dead cat will bounce if dropped from high enough!"?

Dalal Street
A term that refers to the Bombay Stock Exchange, the major stock exchange in India. The street is home not only the Bombay Stock Exchange but also a large number of other financial institutions.The term "Dalal Street" is used in the same way as "Wall Street" in the U.S., referring to the country's major stock exchanges and overall financial system. These terms are often seen in the financial media.

Ex-Dividend
The trading of shares when a declared dividend belongs to the seller rather than the buyer.A stock trades ex-dividend on or after the ex-dividend date (ex-date).

Ex-Rights
Shares of stock that are trading but no longer have rights attached because they have either expired, been transferred to another investor or been exercised. The rights originally assigned to the stockholder are, for whatever reason, no longer valid or no longer applicable to the stock.Ex-rights shares are worth less than shares which are not yet ex-rights - the ex-rights shares do not give a shareholder access to a rights offering. Renounceable rights may trade separately, allowing shareholders to choose to sell their rights rather than exercise them.

Eat Well, Sleep Well
An adage that, referring to the risk/return trade-off, says that the type of security an investor chooses depends on whether he or she wants to eat well or sleep well.Investing in high-risk, high-reward securities will offer you the potential to eat well, but the risky nature of these securities might prevent you from sleeping at night. By contrast, investing safely means that you will sleep well, but the low rate of return may keep you from eating well.

Eat Your Own Dog Food
An expression describing the act of a company using its own products for day-to-day operations. A company that eats its own dog food sends the message that it considers its own products the best on the market.This slang was popularized during the dotcom craze when some companies did not use their own products and thus could "not even eat their own dog food". An example would've been a software company that created operating systems but used its competitor's software on its corporate computers.

Gap
A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between. Gaps can be created by factors such as regular buying or selling pressure, earnings announcements, a change in an analyst's outlook or any other type of news release.

Haircut
1. The difference between prices at which a market maker can buy and sell a security.
2. The percentage by which an asset's market value is reduced for the purpose of calculating capital requirement, margin and collateral levels.
3. The term haircut comes from the fact that market makers can trade at such a thin spread.
4. When they are used as collateral, securities will generally be devalued since a cushion is required by the lending parties in case the market value falls.

Initial Margin
The percentage of the purchase price of securities (that can be purchased on margin) that the investor must pay for with his or her own cash or marginable securities. Also called the "initital margin requirement". For futures contracts, initial margin requirements are set by the exchange.

Panic Buying
High volume buying brought about by sharp price increases.The main problem with panic buying is that investors are not evaluating fundamentals. Instead, they are blindly buying before prices rise even more.

Pivot
A price level established as being significant either by the market's failure to penetrate it or when a sudden increase in volume accompanies the move through the price level.A technical indicator, the pivot price is similar to resistance or support levels. If the price is exceeded, a breakout is expected to occur.

Price Tension
The phenomenon by which the seller of a particular good, service, or security desires to maximize the selling price, while the buyer desires to minimize the purchasing price. Generally speaking, the greater the price tension within a particular market, the greater the bid-ask spread.Price tension tends to decrease liquidity and create price stickiness. If price tension is relatively large within a particular market or exchange, there will be larger bid-ask spreads. Sellers will be asking for more than what the vast majority of buyers are willing to pay, which will drastically reduce the number of exchanges made within the market. Having little liquidity in a given market exposes the investor to liquidity risk, which can result in drastic changes in the security's underlying value.

Panic Selling
Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell.The main problem with panic selling is that investors are selling in reaction to pure emotion and fear, rather than evaluating fundamentals. Almost every market crash is a result of panic selling. Most major stock exchanges use trading curbs and halts to limit panic selling, to allow people to digest any information on why the selling is occurring, and to restore some degree of normalcy to the market.

Pump And Dump
A scheme attempting to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements. The perpetrators of this scheme, who already have an established position in the company's stock, sell their position after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines. The victims of this scheme will often lose a considerable amount of their investment as the stock often falls back down after the process is complete. Traditionally, this type of scheme was done through the cold-calling of individuals but with the advent of the internet this illegal practice has become even more prevalent. Pump and dump schemes usually target micro- and small-cap stocks, as they are the easiest to manipulate. Due to the small float of these types of stocks it does not take a lot of new buyers to push a stock higher. Claims being made about how a stock is set to break out based on the next greatest thing or generate returns of hundreds or thousands of percent, should be met with a considerable amount of caution. It is important to always do your own research in a stock before making an investment.

Profit Taking
The action of selling stock to cash in on a sharp rise. This action pushes prices down temporarily. When traders are profit taking, the implication is that there is an upward trend in the security.For example, in the media you might hear something like this: "Markets were down today as traders took some profits off the table." It's common for prices to retract to some extent even in bull markets.

Punter
A trader who hopes to make quick profits. Basically, another term for "speculator". A punter's approach is to speculate rather than invest. Thus, punters aren't concerned with the fundamentals of an investment; instead, they attempt to make a quick profit by selling to somebody else at a higher price. Punters speculate in any market, but especially like options, futures and forex because of the leverage.

Pyramiding
A method of increasing a position size by using unrealized profits from successful trades to increase margin.An investor who is pyramiding uses excess margin from the increasing price of a security in his or her portfolio to purchase more of the same security. This is generally a slow method of increasing one's position size as the margin increases will permit successively smaller purchases.

Selling Into Strength
A proactive trading strategy carried out by selling out of a long or into a short position when the price of the asset being traded is still rising but is expected to reverse in price. Opposite of "buying into weakness". For example, say a trader believes ABB stock will rise above Rs 15.00 but expects it to reverse at Rs 15.75. If the trader buys ABB stock at Rs 5.00 and sells when the price hits a predetermined exit price of Rs 5.50, that trader would be selling into strength. Conversely, a short seller may sell into a rising price with the anticipation that the stock price will soon decline. Many traders will wait for confirmation of a change in price movement before reacting. However, by the time a reversal is confirmed, it may be too late and the trader may end up losing. Thus, by trading against the prevailing trend in the anticipation that it will soon reverse, the trader allows him- or herself a greater margin of safety. As the saying goes, "missed money is better than lost money"

Short Squeeze
A situation in which a lack of supply and an excess demand for a traded stock forces the price upward.Short squeezes occur more often in smaller cap stocks with small floats. If a stock starts to rise rapidly, the trend may continue to escalate because the short sellers will likely want out. For example, say a stock rises 15% in one day, those with short positions may be forced to liquidate and cover their position by purchasing the stock. If enough short sellers buy back the stock, the price is pushed even higher.

Sterile Investment
An investment that does not provide dividends or interest to the investor. In a sterile investment, the return is generated completely by capital gains. Investing in gold or silver is a good example of a sterile investment.

Sideways Market
A situation in which stock price changes little over a period of time. Consequently, traders who follow trends when making their investment decisions will tend to perform poorly during a sideways market.Also known as "horizontal price movement" or "flat market."

T+1 (T+2,T+3)
Abbreviations that refer to the settlement date of security transactions. The T stands for transaction date, which is the day the transaction takes place. The numbers 1, 2 or 3 denote how many days after the transaction date the settlement or the transfer of money and security ownership takes place. For determining the settlement date the only days that are counted are those on which the stock market is open. T+1 means that if a transaction occurs on a Monday, settlement must occur by Tuesday. Likewise, T+3 means that a transaction occurring on a Monday must be settled by Thursday, assuming no holidays occur between these days. But if you sell a security with a T+3 settlement date on a Friday, ownership and money transfer does not have to take place until the following Wednesday. Do not, however, think of the period between transaction and settlement as a flex time in which you can back out of the deal. The deal is done on the transaction day--it's just the transfer that does not take place until later. Currently we ae in T+2 settlement.

Tape Is Late
A situation on the trading floor where trading volume is so heavy that the real-time ticker quotes are delayed by a minute or two. When the tape is late some price or volume digits will be deleted.The term comes from years ago when the "tape" was actually paper and the printer couldn't keep up with trading activity. In the modern stock market this isn't as much of an issue because data is generally delivered electronically.

Tip from a Dip
Advice from a person who claims to have inside information, such as substantially higher than expected earnings or government approval of corporate mergers, that will materially impact a stock's price but actually doesn't.Sometimes referred to as a "tipster" or "tipper", these personalities should be avoided at all costs. Government regulations prevent persons with material insider information, such as corporate executives and board members, from disclosing their knowledge to family members, friends, or other persons for the purpose of profiting off virtually guaranteed changes in a stock's price once the news hits the street; anyone with decent insider information is effectively prevented from profiting from it on the open market

Weekend Effect
A common occurrence in which stock prices tend to be negative Friday through Monday.Simply put, this is the tendency of stock prices to fall over the weekend

Widow-and-Orphan Stock
Relatively low-risk stocks from well-known firms that pay high dividends.Widow-and-Orphan stocks are generally chosen during bear markets and ignored during bull markets. This is because these companies are perceived to be able to maintain their dividend payment schedule through difficult financial times.
A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock. In a margin account, you are investing with your broker's money. By using leverage in such a way, you magnify both gains and losses.

Margin Call
A broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be forced either to deposit more money in the account or to sell off some of your assets.

Naked Position
A securities position that is not hedged from market risk. Both the potential gain and the potential risk are greater when a position is naked instead of covered (a covered position is hedged from market risk).If an investor simply holds 500 shares of SBI, he or she has a naked position in SBI. If the investor wanted to cover this position, he or she could buy put option contracts, which would help protect against downward movements in the price of SBI shares.Whether to have a naked position is rarely a concern for most small investors, but it is a concern for large investment holders and institutions.

Oversold
A condition in which the price of an underlying asset has fallen sharply, and to a level below which its true value resides. This condition is usually a result of market overreaction or panic selling. A situation in technical analysis where the price of an asset has fallen to such a degree - usually on high volume - that an oscillator has reached a lower bound. This is generally interpreted as a sign that the price of the asset is becoming undervalued and may represent a buying opportunity for investors. Assets that have experienced sharp declines over a brief period of time are often deemed to be oversold. Determining the degree to which an asset is oversold is very subjective and could easily differ between investors.Identifying areas where the price of an underlying asset has been unjustifiably pushed to extremely low levels is the main goal of many technical indicators such as the relative strength index, the stochastic oscillator, the moving average convergence divergence and the money flow index.

Overstay
The act of holding an investment for too long. It often occurs when traders attempt to time the market by identifying the end of a price trend and the beginning of a new one, but, due to greed and fear, tend to overstay their positions. This usually results in reduced gains or, worse, further losses.Knowing when to sell or get out of an investment is just as important as knowing when to get in. However, timing the market correctly is a task that even professional investors and traders find difficult to accomplish on a consistent basis, so attempting market timing is not recommended for the average investor.

Panic Buying
High volume buying brought about by sharp price increases.The main problem with panic buying is that investors are not evaluating fundamentals. Instead, they are blindly buying before prices rise even more.

Pivot
A price level established as being significant either by the market's failure to penetrate it or when a sudden increase in volume accompanies the move through the price level.A technical indicator, the pivot price is similar to resistance or support levels. If the price is exceeded, a breakout is expected to occur.

Price Tension
The phenomenon by which the seller of a particular good, service, or security desires to maximize the selling price, while the buyer desires to minimize the purchasing price. Generally speaking, the greater the price tension within a particular market, the greater the bid-ask spread.Price tension tends to decrease liquidity and create price stickiness. If price tension is relatively large within a particular market or exchange, there will be larger bid-ask spreads. Sellers will be asking for more than what the vast majority of buyers are willing to pay, which will drastically reduce the number of exchanges made within the market. Having little liquidity in a given market exposes the investor to liquidity risk, which can result in drastic changes in the security's underlying value.

Panic Selling
Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell.The main problem with panic selling is that investors are selling in reaction to pure emotion and fear, rather than evaluating fundamentals. Almost every market crash is a result of panic selling. Most major stock exchanges use trading curbs and halts to limit panic selling, to allow people to digest any information on why the selling is occurring, and to restore some degree of normalcy to the market.

Pump And Dump
A scheme attempting to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements. The perpetrators of this scheme, who already have an established position in the company's stock, sell their position after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines. The victims of this scheme will often lose a considerable amount of their investment as the stock often falls back down after the process is complete. Traditionally, this type of scheme was done through the cold-calling of individuals but with the advent of the internet this illegal practice has become even more prevalent. Pump and dump schemes usually target micro- and small-cap stocks, as they are the easiest to manipulate. Due to the small float of these types of stocks it does not take a lot of new buyers to push a stock higher. Claims being made about how a stock is set to break out based on the next greatest thing or generate returns of hundreds or thousands of percent, should be met with a considerable amount of caution. It is important to always do your own research in a stock before making an investment.

Profit Taking
The action of selling stock to cash in on a sharp rise. This action pushes prices down temporarily. When traders are profit taking, the implication is that there is an upward trend in the security.For example, in the media you might hear something like this: "Markets were down today as traders took some profits off the table." It's common for prices to retract to some extent even in bull markets.

Punter
A trader who hopes to make quick profits. Basically, another term for "speculator". A punter's approach is to speculate rather than invest. Thus, punters aren't concerned with the fundamentals of an investment; instead, they attempt to make a quick profit by selling to somebody else at a higher price. Punters speculate in any market, but especially like options, futures and forex because of the leverage.

Pyramiding
A method of increasing a position size by using unrealized profits from successful trades to increase margin.An investor who is pyramiding uses excess margin from the increasing price of a security in his or her portfolio to purchase more of the same security. This is generally a slow method of increasing one's position size as the margin increases will permit successively smaller purchases.

Selling Into Strength
A proactive trading strategy carried out by selling out of a long or into a short position when the price of the asset being traded is still rising but is expected to reverse in price. Opposite of "buying into weakness". For example, say a trader believes ABB stock will rise above Rs 15.00 but expects it to reverse at Rs 15.75. If the trader buys ABB stock at Rs 5.00 and sells when the price hits a predetermined exit price of Rs 5.50, that trader would be selling into strength. Conversely, a short seller may sell into a rising price with the anticipation that the stock price will soon decline. Many traders will wait for confirmation of a change in price movement before reacting. However, by the time a reversal is confirmed, it may be too late and the trader may end up losing. Thus, by trading against the prevailing trend in the anticipation that it will soon reverse, the trader allows him- or herself a greater margin of safety. As the saying goes, "missed money is better than lost money"

Short Squeeze
A situation in which a lack of supply and an excess demand for a traded stock forces the price upward.Short squeezes occur more often in smaller cap stocks with small floats. If a stock starts to rise rapidly, the trend may continue to escalate because the short sellers will likely want out. For example, say a stock rises 15% in one day, those with short positions may be forced to liquidate and cover their position by purchasing the stock. If enough short sellers buy back the stock, the price is pushed even higher.

Sterile Investment
An investment that does not provide dividends or interest to the investor. In a sterile investment, the return is generated completely by capital gains. Investing in gold or silver is a good example of a sterile investment.

Sideways Market
A situation in which stock price changes little over a period of time. Consequently, traders who follow trends when making their investment decisions will tend to perform poorly during a sideways market.Also known as "horizontal price movement" or "flat market."

T+1 (T+2,T+3)
Abbreviations that refer to the settlement date of security transactions. The T stands for transaction date, which is the day the transaction takes place. The numbers 1, 2 or 3 denote how many days after the transaction date the settlement or the transfer of money and security ownership takes place. For determining the settlement date the only days that are counted are those on which the stock market is open. T+1 means that if a transaction occurs on a Monday, settlement must occur by Tuesday. Likewise, T+3 means that a transaction occurring on a Monday must be settled by Thursday, assuming no holidays occur between these days. But if you sell a security with a T+3 settlement date on a Friday, ownership and money transfer does not have to take place until the following Wednesday. Do not, however, think of the period between transaction and settlement as a flex time in which you can back out of the deal. The deal is done on the transaction day--it's just the transfer that does not take place until later. Currently we ae in T+2 settlement.

Tape Is Late
A situation on the trading floor where trading volume is so heavy that the real-time ticker quotes are delayed by a minute or two. When the tape is late some price or volume digits will be deleted.The term comes from years ago when the "tape" was actually paper and the printer couldn't keep up with trading activity. In the modern stock market this isn't as much of an issue because data is generally delivered electronically.

Tip from a Dip
Advice from a person who claims to have inside information, such as substantially higher than expected earnings or government approval of corporate mergers, that will materially impact a stock's price but actually doesn't.Sometimes referred to as a "tipster" or "tipper", these personalities should be avoided at all costs. Government regulations prevent persons with material insider information, such as corporate executives and board members, from disclosing their knowledge to family members, friends, or other persons for the purpose of profiting off virtually guaranteed changes in a stock's price once the news hits the street; anyone with decent insider information is effectively prevented from profiting from it on the open market

Weekend Effect
A common occurrence in which stock prices tend to be negative Friday through Monday.Simply put, this is the tendency of stock prices to fall over the weekend

Widow-and-Orphan Stock
Relatively low-risk stocks from well-known firms that pay high dividends.Widow-and-Orphan stocks are generally chosen during bear markets and ignored during bull markets. This is because these companies are perceived to be able to maintain their dividend payment schedule through difficult financial times.