29 Years
Home > Business & Investment > How Knowledgeable Are You About The Markets?

How Knowledgeable Are You About The Markets?

Monday, June 23, 2014
By Raghu Kumar

Raghu Kumar is Cofounder, RKSV

Whether you're in a train, a bus, drinking chai at the road stand, or simply browsing the web, there’s a certain topic that everybody seems to be talking about.

The Stock Markets
How well versed are you with the markets? Being well versed with the markets- the different sectors, the art of maintaining a well balanced and hedged portfolio, and implementing proper risk management through using the technique of risk-reward ratios- could be more important now than ever before. The reason has to do with the fact that we can expect the markets to do well in the near future due to a pro-business government that will look to implement reforms to boost the markets.

It’s important to know the major sectors. A quick and dirty way to test your knowledge of sectors is to quiz yourself and see whether you can name which stock each company that makes up the Sensex or Nifty falls into. Infra, banking, real estate, FMCG, textile- the list is quite exhaustive! By mastering the art of knowing which sector a company falls under, you will be better equipped to know what stocks to buy when you are expecting a specific sector to do well.

You also want to know exactly how much you’re paying your broker through taxes and fees. Many investors and traders make the mistake of thinking that they only pay brokerage on their trades. The reality is that, outside of brokerage, brokers charge STT, stamp duty, SEBI fees, and other mandatory government fees. Brokers also try to add “hidden” fees disguised as “turnover” fees. Check your contract note(s) carefully to see what fees you are paying!

The Art of Hedging your Portfolio
As I write this, the situation in Iraq is escalating quickly as insurgents have taken over Iraq’s oil refineries. Iraq is a big exporter of oil; therefore, its supply of oil has an immediate impact on the price of crude oil.

So, the magical question arises: how does one capitalize on this? There is a good chance that oil prices can rise if the situation is not kept under control over the next few days. A savvy trader would look to buy crude oil contracts on the MCX (Multi Commodity Exchange).

But what if the situation is kept under control, and crude oil prices remain stable or worst yet, go down? In order to protect himself, what he can do is sell USD/INR contracts on Currency Futures. The reason is simple: the US Dollar is inversely proportional to crude oil prices. Therefore, the Rupee strengthens and the trader can earn a profit.

This, in layman’s terms, is called a hedge. The trader is protected from either side of the trade. Similarly, many situations arise where a hedge can be used to protect oneself from one-sided risk.

Ensure that you’re well versed with how a hedge works and when is the right time to implement it.

Stop Losses & Profit Objectives
Risk management might be the single most important tool a trader can implement in order to ensure that his portfolio remains intact. A good rule of thumb for traders is to use a proper risk to reward ratio, such as a 1:2 ratio. This means that, on a particular trade, if a trader is placing a stop loss Rs. 50 below a buy entry price, he is looking to gain Rs. 100 on the trade. By utilizing risk management, a trader ensures that he knows exactly what he is getting into before entering the trade.

So, there you have it. Next time you hear people talking about the stock markets, feel free to jump right into the mix and spread your knowledge!

No Comments Posted
City news
The Brihanmumbai Municipal Corporation (BMC) has
To make students take the subject seriously, stat
A 42-year-old woman from Mumbai today feels light
I am a 25-year-old mother. I do not want to make
Dr. Rajan B. Bhonsle, M.D. (Bom)
Consulting Sex Therapist & Counsellor
Dr. (Mrs.) Minnu R. Bhonsle, Ph.D.
Consulting Psychotherapist & Counsellor
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)Diligent efforts to recover your dues succeed. Some chances of gains in speculative deals or shares also exist. Plan you further investment s carefully. Emotionally you will be feeling much more positive and secure. It will be the charms of your beloved, which keep your spirits high.
Tarot for Love
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)What the cards say: The Wheel of Fortune is spinning in your favour Path: Find solutions to old issues. Don’t be anxious or in hurry Ally: Taurus will show you how to be peaceful. Avoid Gemini who will show you sophistry of thought and confuse you Card for the week: Tarot key no. III the Empress. All good things, lovely and beautiful things will come to you in abundance
- Advertising -
New Zealand has a world class tertiary education
More on Sound Engineering
Want to study Marine Engineering
Read More