Introduction to Share Trading
As a concept, Share Trading is considered to be reserved for the Wall Street professionals and many people believe that it’s best to stay clear of it. However, the truth is, share trading is a well-researched and disciplined technique of investing which is quite simple, provided the share trading basics are right. So, yes, it is for everyone and you can start at a very slow pace and learn the tricks of the trade while investing yourself!
Let us see a few key things so that you can start by yourself.
What is Share Trading?
Share trading is the basic process of buying and selling of stocks of a company either in the primary market, i.e. from the company directly or through the secondary market, i.e. a stock exchange, like NSE or BSE. When a company issues its first set of shares, they issue an Initial Public Offer (IPO) for the people to buy the shares of the company directly. Thus, an investor becomes an owner of the company, proportionate to the value of the shares as compared to the market value of the company. After purchase, the shares need to get listed on either of the stock exchanges like NSE or BSE (explained below) for the investor to trade in them.
Benefits of share trading:
There are certain distinctive benefits of share trading like:
1. Growing your money over time and earning profit
2. Beating the inflation
3. Earning dividend
4. Portfolio diversification
5. Ownership of a company, by buying shares of that company.
However, share trading has its own risk of the assets being volatile in nature and that affects the share prices. With good share trading tips, you can learn the methods to earn maximum profits and minimal risk in share trading.
Share Trading Basics
Let us start with the basics of share trading. We will first know about the share market and stock market.
o Share/Stock Market
The share market deals with the buying and selling of shares. The Stock market is similar to the share market but in addition to shares, bonds, mutual funds, other derivative products are also traded here. Share markets are of two types i.e. Primary Share market where a company can get itself registered to issue shares for the public and Secondary Share market where the trading is carried out via a stockbroker.
o Stock Exchange
Share trading takes place at the Stock Exchange where a lot of companies are listed. All major Indian companies are listed on The BSE and NSE i.e. The Bombay Stock Exchange and The National Stock Exchange. Both the stock exchanges have the same process for functionality and the same settlement procedure.
o Market Regulation
Certain regulatory bodies in India are responsible for regulating the share market. Let us list down the regulators in the stock market of India.
• Ministry of Finance
• Securities and Exchange Board of India (SEBI)
• Reserve Bank of India(RBI)
The Securities and Exchange Board of India (SEBI) was established in the year 1988. It is a non-statutory body regulating the share market in our country. Its main objective is the protection of the interest of the investors and the development of the capital market according to certain rules and regulations.
o Depository Participant(DP)
A depository can be defined as an organization or body which holds shares, bonds, mutual funds, etc. of the traders. Two main depositors in our country are National Security Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
A depository participant (DP) is an intermediary or an agent via which the traders make their requests to the depository. These depository participants are appointed by the depository to provide their services. For example, banks and financial institutions are the depository participants.
o Share trading at both The BSE and NSE takes place with the help of an electronic limit order book. This book is a record of all the limit orders that are unexecuted and are being maintained by a share trading specialist. When the buy and sell limit orders for a share are given, the specialist will keep a track of all these orders in the limit order book and will execute them when the appropriate pricing is available.
o The procedure is order driven and no human intervention is involved. When the market orders are placed, they are automatically matched up with the best available limit orders.
o Mostly all orders are placed via stockbrokers in the trading system. The stockbrokers provide an online facility to the customers by which orders can be placed.
Since the entire trading mechanism is order-driven, the buyers and sellers are not revealed. As a result, there is more clarity in the whole process of displaying the buy and sell orders in the system.
The two major stock market indexes are Sensex and Nifty. Investors usually tend to follow the market indexes to keep track of the movements or changes in the market. A market index can be defined as a theoretical or hypothetical aggregation of several investment holdings. These holdings represent a portion of the financial market.
Sensex consists of the 30 most frequently traded stocks on the Bombay Stock Exchange. Sensex is the oldest stock index in India and was started in the year 1986. Nifty comprises of the 50 largest stocks of the National Stock Exchange. The companies need to meet specified terms of capitalization and liquidity to be included in these indices.
How to start share trading?
Let us have a look at the basic steps involved in how to start share trading for beginners.
Firstly, you need to find out a stockbroker or a firm. Stockbrokers are of two categories i.e. full-service stockbrokers and discount stockbrokers. As the name suggests, a full-service stockbroker will provide you with numerous services starting from share trading to financial planning. Discount brokers will charge lower fees and will provide only the minimum share trading facilities. You need to scrutinize all the options wisely.
Then, you need to fill up the account opening form and the KYC form. You can do this by visiting the nearest office of the broker. Along with the forms, you will need to submit certain documents like Voter ID card, PAN card, passport, etc. for identity and address proof.
You can also open your share trading account online by visiting your stockbroker's website.
Which shares can you invest in?
Since now you know about how to do share trading, it’s time to know about the correct place of investment. In the stock market, you will find a lot of leading companies whose shares are available for trading. Now, you might be in a dilemma regarding the decision about which shares to trade?
This choice of shares for trading completely depends on a trader’s personal preferences. Usually, for beginners, it is always safe to start with shares of those companies which they know very well or can get information easily if they want. Later on, after gaining some experience in on how to do share trading, you can start trading in a large variety of shares basis your thorough research & analysis.
Share Trading Tips
Let's discuss some share trading tips which can be of great use for beginners.
o Educate yourself about the stock market, benefits of share trade, which investment would be profitable for you, etc.
o Start practicing by using an online simulator as this would help you understand the working process without any risk.
o Make a proper plan on your amount of investment and the period to hold the investment.
o Take help from a mentor who has fair experience in the world of share trading.
o Register into online sessions on stock broking, share trading for more knowledge and learning.
Share trading is not very difficult but can be mastered with time. For beginners, it is always advisable to take help from experts like IndiaNivesh who not only know the pulse of the market but also have immense experience to give the best advice.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Intraday Trading - Best Intraday Trading Indicators
Trading seems like rocket science to many but it is a simple thing if one has got a hang of basics. Understanding the different types of trading is essential and one such is intraday trading. Intraday trading is the process of buying and selling stocks on the same day during trading hours. The major aim of traders for practicing intraday trading is profit creation by taking into account the stock market movements. These stock market movements during the day are helpful for short-term traders who are interested in settling down all their positions by the end of the day. However, information overload is not always very helpful to make a profitable decision. However, intraday trading involves more risk than regular investments made into the stock market. To earn profits in intraday trading, it is essential to have some basics in place. Let us talk about some important aspects. What are the Intraday Trading Indicators? Intraday trading indicators are the tools which can be combined with a comprehensive plan for obtaining maximized returns during the intraday trading. In the case of intraday trading, decisions are always taken based on the price movement in the stock market. However, if you are interested to book your profits, you will have to do a lot of research. For this, you will need certain indicators and intraday indicators are apt for that. These indicators help you in understanding the stock market and implementing your strategy wisely to get the optimum returns. The information offered by Intraday Trading Indicators • Intraday trading indicators share certain important pointers which will help a trader in understanding the situation in the stock market and making better decisions related to profits.• Intraday trading indicators will help the traders in understanding the direction of the market trend. This direction of the market trend will help the traders to know about the price movements.• These indicators help in indicating the existing momentum or lack of momentum in the stock market which will hamper the returns.• Intraday trading indicators help in determining the popularity of securities by the measurement of volume. This volume can help the traders to know about the popularity of the market with other traders.• The indicators help in knowing if the market is moving or not. This means the intraday trading indicators indicate if there is volatility or not in the stock market for booking profits. Useful Intraday Trading Indicators We can list down some of the most accurate intraday trading indicators which are actually of great help to the traders. 1. Moving Averages The Moving average indicator can be defined as a line on the stock chart which is responsible for connecting the average of the closing rates of the market. This is calculated for a specific period. The reliability of the Moving Averages indicator is directly proportional to the period considered for calculation. The prices of the securities tend to move in different directions; so, the Moving Averages indicator will help the traders in understanding the principal direction of price movement. The prices of stocks are volatile in nature and this intraday trading indicator will reduce the volatility of prices by which traders can understand the principal trend in the movement of price. 2. Bollinger Bands The Bollinger bands help in providing an idea about the trading range of the stocks. These bands have 3 lines i.e. the moving average line, an upper limit and a lower one. These lines represent the standard deviation of the stocks. This Standard deviation means the amount by which the price of the stocks increases or decreases with reference to its average value. 3. Momentum Oscillators The Momentum Oscillators show the strength of demand for a particular share at a given price. If there is an increase in the price of a share and it is on the higher side but at the same time the Momentum Oscillator is falling; it means that the demand for the share is falling and this will lead to a rise in the price of the share. However, if there is a rising Momentum oscillator it means the trend in the market is strong and will continue. 4. Relative Strength Index The Relative Strength Index (RSI) shows the strength of a particular price of a share by tracking the last 14 periods by default. It helps in a comparison of the share price’s gains and losses and then this information is converted to an index form. This index form helps in narrowing the RSI range between 0 and 100. This index will rise with price rise and will decrease with the fall in the price of shares. Decoding the Intraday Trading Indicators The use of above listed most accurate intraday trading indicators will help in knowing about the risk and avoiding the risk. For doing so, the traders should decode the trading indicators and understand what the indicators imply. 1. Decoding the Moving Averages If there are short term averages that are higher than the long term averages, then you can conclude the market trend as a bullish one. In such a scenario, traders can opt for a decision to buy securities with some specific strategy like stopping loss at the moving average. 2. Decoding Bollinger Bands In the case of Bollinger bands, suppose a particular stock is trading at a price that is below the lower line of the Bollinger band, then there is a high probability for the price of the stock to rise in the upcoming days. In such a scenario, traders can plan to buy the stocks. On the contrary, if the stock price lies over the upper line then traders can plan to sell shares. 3. Decoding Momentum Oscillators Suppose, the price of a share has reached a historic high point and the level of the oscillator is different from that of the price; then it indicates decreasing demand. It will also indicate the fall in the price of the stock. 4. Decoding RSI In the case of RSI, it is advisable to analyze the history and the volatile nature of RSI before you make any decision. Usually, it is advisable that a trader should go ahead and buy a stock when the RSI is 30 and if it has risen to 70 then the trader should sell the stock. However, there might be exceptions and so it is necessary to have an analysis before making a decision. Best technical Indicators for intraday trading After we have known about all the most accurate intraday trading indicators, it is quite difficult to decide on the best indicator for intraday trading. There are some tips which will be a help in determining the best indicator for intraday trading. 1. Day Trading with Indicators or No Indicators Some day traders do not use the intraday trading indicators for any information about market trends. These traders believe that when trading is being practiced based on the price of stocks, there is minimal use of indicators in those cases. Trading indicators help in visualizing certain facts which may not be visible through a price chart. However, they have a problem of giving the sign of a reversal either very early or very late. Intraday trading indicators are simple tools and the information they provide is dependent on the data about price and volume. 2. Redundant intraday trading indicators There are a lot of indicators that are the same as the others with very little variations. Many of them belong to the same groups but have slightest of difference. If you are using all of these indicators together, then it would be of minimal help to you as they all would give the same results and sometimes can even worsen the results. You can pick an indicator from each group and use them for references. This would somehow reduce redundancy up to a certain extent and would help in getting coherent results. 3. Intraday trading indicators can be combined In some cases, indicators can be combined to obtain information about factors like the direction of market trends, trading opportunities, etc. This combination of indicators can be helpful for traders to maximize their profits. However, the factors on which combination of indicators depend can be different for different traders and might depend on the trader’s choice of trade. Precisely, there is no such single indicator that can be considered as the best indicator for the intraday trading indicator. You can use the indicator of your choice in such a way that it becomes more productive for you. Hence, intraday trading indicators are just tools and their way of use will determine their productivity. The use of too many indicators should be avoided by traders. As a trader, you should know certain details related to your indicator like its drawbacks, its tendency to miss good trades or produce false signals, etc. These factors would help you in using your indicators more productively. For those who need expert advice on intraday trade, getting in touch with experts of IndiaNivesh is a safe bet as their experienced team is available to guide using the right tools. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Private Equity Fund – What is Private Equity & How does it work?
What is Private Equity?When it comes to investing, most of the investors opt for the traditional route. They invest in bonds or stocks or purchase mutual funds. While for some others, private equity is an appealing investment option. But what is private equity fund and what is the private equity fund structure? How can one invest in it?In this article, we explain private equity fund meaning in depth to give you a better understanding of the concept. What is Private Equity Fund?Private equity is a general term which describes different kinds of funds pooling money from several investors to acquire stakes in companies. Such a private equity fund may amass millions or even billions of dollars to directly invest in companies. These companies are not publically listed on the exchange or traded. So, a private equity fund either directly invests in private companies or engages in buyouts of public companies, resulting in the delisting of public equity. Private Equity Fund StructureA private equity fund comprises of Limited Partners (LP) who own 99 per cent of the shares in a fund. They have limited liability. The remaining 1 per cent is owned by General Partners (GP) who have full liability. They are responsible for executing and operating investment. Understanding What is Private EquityPrivate equity involves investing in unlisted companies at different stages of their development. This is done with the objective of creating an added value to these companies. After some years, such companies can be sold with a significant capital gain. Simply put, private equity funds are created with the intention of raising money from several investors to deploy it progressively by acquiring companies and helping them grow more profitable.Since private equity investment directly invests into a company, it requires a large capital outlay to gain a significant level of influence over the company’s operations. This is why not every investor can afford to invest in private equity. The minimum amount of capital required varies depending on the fund and the firm. Some funds have a $2,50,000 minimum investment requirement, while others can run into millions of dollars. Therefore, most of the private equity firm industry comprises of large institutional investors such as pension funds. Or, they may be funded by a group of accredited investors. How Does Private Equity Work?Private equity firms raise money from accredited investors and institutional investors to invest in companies through the following investment strategies:• Distressed FundingThis is also known as vulture financing. In this type of private equity funding, the money is invested in troubled companies with underperforming business assets or units. The funding is aimed at making necessary changes to the operations or management for a turnaround of the company. This could mean selling their assets for a profit ranging from patents to real estate and physical machinery. Mostly, companies that have filed for bankruptcy fall in this category and require this type of funding. • Leveraged BuyoutsThis type of private equity funding is the most popular investment strategy. Here, the private equity firm buys out a company completely with the objective of improving its financial and business health. Later, the company can be sold at a profit to an interested buyer or made public by conducting an Initial Public Offer. The firm uses debt as leverage to buy out the company so it does not have to spend the purchase price at once. The money from various investors can be used to improve the company’s earnings and create a higher return. • Funds of FundsAs the name suggests, this type of funding invests in other funds, typically hedge funds and mutual funds. The aim of the FOF strategy is to achieve broad diversification and minimal risk. For an investor who cannot afford the minimum capital requirements in such funds, FOF serves as a backdoor entry. • Venture CapitalVenture capital investments focus more on investing in newer companies or startups that are on the verge of developing a new technology or industry. This type of funding can be done at different stages of a company. For example, seed financing funds a company to scale an idea from its prototype stage to the development of a product or a service. Similarly, an early stage financing can assist the entrepreneur in helping his company grow. Or, Series A financing which can enable an entrepreneur to actively compete in a market or create one. Advantages of Private EquityPrivate equity offers multiple benefits to startups, businesses and companies. It provides them access to liquidity instead of having to rely on traditional forms of financial mechanisms such as listing on public markets for funding. Another huge advantage of private equity funding is that companies can operate away from the glares of public markets. They are not required to submit quarterly reports to the outside world and can undertake a long-term approach in bettering their fortunes. Certain forms of private equity financing such as venture capital funding can be ideal for early stage companies who do not wish to take high business loans. What are Some Myths Regarding Private Equity Firms?Here are some myths surrounding private equity firms which are not true.• Private Equity Firms Strip A Company’s AssetsMany analysts believe that private equity firms are able to turnaround a company by stripping it of its best assets. In reality, private equity firms have been known to create added value to a company by expanding their geographical footprint. Or, acquiring and integrating smaller competitors, and repositioning an out-of-date concept into a trendy product. • Private Equity Firms Cut CostsPrivate equity firms do cut costs, but only the unnecessary ones with a view to reinstating the money into other functions. For example, research, marketing, sales, and more. This can help support the company expansion with a lesser capital outlay.• Investor’s Money Is Blocked For 10 YearsGrowing companies can take time. Thus, investments made into private equity funds are generally seen as long-term or illiquid. However, it is not rare that a company can be sold off after a 4 or 6 year holding period. Private funds usually have a 10-year maturity, but it is possible that all the money gets invested in the first 5 to 7 years of the fund's life. Private Equity Fund v/s Other Kinds of EquityPrivate equity is not traded on public exchanges whereas equity through stocks is publically traded. In addition, private equity firms only invest in failing companies that need a turnaround or strong performing companies that can further improve margins and efficiency. For other kinds of equity, investors can invest in all types of companies. Private equity firms are attractive investment vehicles for institutions and wealthy individuals. Private equity operations at IndiaNivesh Ltd. are aimed at creating value for our investor clients seeking growth opportunities in unlisted businesses at an early stage. You may get in touch with our team of highly-knowledgeable fund managers to know more about investing. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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