general awareness

 Trading Futures To understand futures trading and profit/loss that can occur while trading, knowledge of pay-off diagrams is necessary. Pay-off refers to profit or loss in a trade. A pay-off is positive if the investor makes a profit and negative if he makes a loss. A pay-off diagram represents profit/loss in the form of a graph which has the stock price on the X axis and the profit/ loss on the Y axis. Thus, from the graph an investor can calculate the profit or loss that his position can make for different stock price values. Forwards and futures have same pay-offs. In other words, their profit/loss values behave in a similar fashion for different values of stock price. In this chapter, we shall focus on pay-offs of futures contracts. Pay-off of Futures The Pay-off of a futures contract on maturity depends on the spot price of the underlying asset at the time of maturity and the price at which the contract was initially traded. There are two positions that could be taken in a fu...

 Participants in the Derivatives Market As equity markets developed, different categories of investors started participating in the market. In India, equity market participants currently include retail investors, corporate investors, mutual funds, banks, foreign institutional investors etc. Each of these investor categories uses the derivatives market to as a part of risk management, investment strategy or speculation. Based on the applications that derivatives are put to, these investors can be broadly classified into three groups: · Hedgers · Speculators, and · Arbitrageurs Hedgers These investors have a position (i.e., have bought stocks) in the underlying market but are worried about a potential loss arising out of a change in the asset price in the future. Hedgers participate in the derivatives market to lock the prices at which they will be able to transact in the future. Thus, they try to avoid price risk through holding a position in the derivatives market. Different hedger...

 Definitions of Basic Derivatives There are various types of derivatives traded on exchanges across the world. They range from the very simple to the most complex products. The following are the three basic forms of derivatives, which are the building blocks for many complex derivatives instruments (the latter are beyond the scope of this book): · Forwards · Futures · Options Knowledge of these instruments is necessary in order to understand the basics of derivatives. We shall now discuss each of them in detail. Forwards A forward contract or simply aforward is a contract between two parties to buy or sell an asset at a certain future date for a certain price that is pre-decided on the date of the contract. The future date is referred to as expiry date and the pre-decided price is referred to as Forward Price. It may be noted that Forwards are private contracts and their terms are determined by the parties involved. A forward is thus an agreement between two parties in which one pa...

 Portfolio Management Meaning Portfolio management is the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance. Portfolio management is all about determining strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other trade-offs encountered in the attempt to maximize return at a given appetite for risk. The portfolio is a collection of investment instruments like shares, mutual funds, bonds , fixed deposits and other cash equivalents etc. Active Vs Passive Management There are two types of Portfolio Revision Strategies. Active Strategy Active Strategy involves frequent changes in an existing portfolio over a certain period of time for maximum returns and minimum risks. Active Strategy helps a portfolio manager to sell and purchase securities on a regular basi...

  Derivatives Definition of Derivatives One of the most significant events in the securities markets has been the development and expansion of financial derivatives. The term “derivatives” is used to refer to financial instruments which derive their value from some underlying assets. The underlying assets could be equities (shares), debt (bonds, T-bills, and notes), currencies, and even indices of these various assets, such as the Nifty 50 Index. Derivatives derive their names from their respective underlying asset. Thus if a derivative’s underlying asset is equity, it is called equity derivative and so on. Derivatives can be traded either on a regulated exchange, such as the NSE or off the exchanges, i.e., directly between the different parties, which is called “over-the-counter” (OTC) trading. (In India only exchange traded equity derivatives are permitted under the law.) The basic purpose of derivatives is to transfer the price risk (inherent in fluctuations of the asset prices)...

 Economic Analysis Economic Analysis is a study of the general economics factors that go into an evaluation of the security's value. The stock market is an integral part of the economy. when the level of the economy. When the level of the economic activity is low, stock price are low, and when the level of the economic activity is high, stock prices are high, reflecting a booming outlook for the sales and profits of the firms. an analysis of the macroeconomic environment is essential to understand the behavior of stocks prices. the commonly analyzed macroeconomic factors are as follows: Gross Domestic Product (GDP) Savings And Investment Inflation Interest rates Budget and Fiscal Deficit Tax Structure Balance of payment Foreign Direct Investment Investment by Foreign institutional investors International Economic Conditions Business Cycle and investor psychology monsoon and Agriculture infrastructure facilities demographic factor Gross Domestic Product (GDP) The GDP represents the ...

  what is fundamental analysis? Fundamental analysis is a combination of economic, industry, and company analysis to obtain a stock's current fair value and predict future value. this kind of fundamental analysis is also known as "top-down approach" because the analysis starts from an analysis of the economy, moves to industry, and narrow down to the company. this is also called EIC (economy, industry, company) analysis.