Posted at 11:00 AM , on August 18, 2018
Derivatives, as the name suggests, derive their value from an underlying asset. Let us take the example of a tomato farmer and a ketchup factory. The farmer grows tomatoes in his farm and supplies it to the ketchup factory on a regular basis. However, the ketchup factor and the farmer want more predictability and stability in their price and their costs and revenues. Let us assume that tomatoes are currently being supplied at Rs.20/kg to the ketchup factor. But there are sharp seasonal variations in these prices. The farmer will be happy if he can get a price of Rs.19-22 per kilogram for his tomatoes while the ketchup factor is open to a price of Rs.20-23 per kilogram in the ideal case scenario.
Posted at 5:56 PM , on August 17, 2018
DURING THE COURSE OF TRADING YOU MUST HAVE SURELY TRIED TO EVALUATE HOW OFTEN YOU GOT YOUR CALLS BANG ON TARGET. FOR MOST SUCCESSFUL TRADERS THE SUCCESS RATIO IS ABOUT 55-60% IN A BEST CASE SCENARIO. THEN WHAT DRAWS THE LINE BETWEEN A SUCCESSFUL INVESTOR AND A NOT SO SUCCESSFUL INVESTOR. THE PROBLEM IS THAT THERE IS JUST TOO MUCH FOCUS ON BEING RIGHT. BUT BEING RIGHT IS NOT THE SAME IS BEING PROFITABLE. WHAT REALLY MATTERS IS WHAT YOU DO WHEN YOU ARE RIGHT AND WHAT YOU DO WHEN YOU ARE WRONG. REMEMBER, WHEN IT COMES TO TRADING BEING RIGHT IS NOT THE SAME AS BEING PROFITABLE…
Posted at 3:00 PM , on August 9, 2018
WHAT IS THE FUNDAMENTAL DIFFERENCE BETWEEN AN INVESTOR AND A TRADER? AN INVESTOR IS LOOKING A LOT MORE INTO THE FUTURE. THE INVESTOR FOCUSES ON ISSUSES LIKE CHANGE IN EARNINGS, NEW ORDERS, MANAGEMENT PLANS, CORPORATE ACTIONS ETC. THE TRADER DOES NOT FOCUS TOO MUCH ON THE FUTURE.THE FOCUS OF THE TRADER IS A LOT MORE ON WHAT HAS ALREADY HAPPENED AND HOW THE STOCK WILL REACT TO IT. THE TRADER LOOKS TO THE MARKET TO ACT AS A GUIDE TO TRADING. HE FIRST READS THE MESSAGE OF THE MARKET AND THEN CALIBRATES HIS TRADES ACCORDINGLY. THE PRESENT HAS A LOT MORE WEIGHTAGE FOR THE TRADER…
Posted at 3:56 PM , on July 27, 2018
IF YOU LOOK AT THE HISTORY OF TRADING DISASTERS IN THE WORLD, ONE COMMON THING YOU WILL COME ACROSS IS THE PROPENSITY TO TRADE MUCH BEYOND THE RISK THAT THEY COULD TAKE ON. TAKE THE CASE OF THE BARINGS IN 1995 OR MORE RECENTLY IN THE CASE OF MAN OF UK. IN THE CASE OF BARINGS, NICK LEESON HAD SOLD STRANGLES ON THE NIKKEI INDEX TO AN EXTENT HE DID NOT HAVE THE CAPITAL TO SUPPORT THE TRADE. THE DISASTER WAS COMPOUNDED BY SOME REALLY LAX BACK OFFICE DISCIPLINE AT BARINGS. THE NET RESULT OF TAKING POSITIONS BEYOND WHAT THEY COULD AFFORD WAS THAT BARINGS SAW ITS ENTIRE CAPITAL BEING WIPED OUT
Posted at 6:04 PM , on July 20, 2018
What do we understand by goals in world of finance? The most basic requirement of goals in the financial world is that it must be measurable. Unless your goals are measurable, you cannot plan for those goals. And unless you know where you need to reach, it does not matter how fast you run.
Once you have crystallized your dreams, the next step is put a number to it. For example, you may require Rs.5 crore for your retirement, Rs.1 crore for your child’s education etc. Once the monetary value is imputed to your goals, the next step is to work backwards and plan how to reach that goal. You need to work out an investment plan in such a way that the outflows sync with your inflows yet enables you to generate huge wealth over time. But for that you need to know what figure you need to reach after a certain number of years.