Web Tutorials4u

CAPITAL MARKET

Trading

  • MEANING OF OPEN INTEREST

    Open Interest also know as OI, is the total number of options and futures contracts that are not closed on a particular day. As you might be aware of volume in a particular stock in equity market, option trading involves the creation of a new option contract when a trade is placed. Open interest
    will tell you the total number of option contracts that are currently open.

    Open Interest is mostly used to confirm a trend for a particular futures contract, For eg, lets look at Reliance 1000 May CALL, the open interest might tell us that there have been 5 options open in the month of May, a trader might then wonder does this refer to the number of contracts bought
    or sold.

  • LEVERAGE AND RISK

    Options can provide leverage.This means an option buyer can pay a relatively small premium for market exposure in relation to the contract value (usually 100 shares of underlying stock). An investor can see large percentage gains from comparatively small, favorable percentage moves in the underlying equity. Leverage also has downside implications. If the underlying stock price does not rise or fall as anticipated during the lifetime of the option, leverage can magnify the investment’s percentage loss. Options offer their owners a predetermined, set risk. However, if the owner’s options expire with no value, this loss can be the entire amount of the premium paid for the option. An uncovered option writer, on the other hand, may face unlimited risk.

  • LONG IN OPTION

    With respect to this booklet’s usage of the word, long describes a position (in stock and/or options) in which you have purchased and own that security in your brokerage account. For example, if you have purchased the right to buy 100 shares of a stock, and are holding that right in your account, you are long a call contract. If you have purchased the right to sell 100 shares of a stock, and are holding that right in your account, you are long a put contract. If you have purchased 1,000 shares of stock and are holding that stock in your brokerage account, or elsewhere, you are long 1,000 shares of stock.

  • INTRODUCTION TO OPTION

    An equity option is a contract which conveys to its holder the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) shares of the underlying security at a specified price (the strike price) on or before a given date (expiration day). After this given date, the option ceases to exist.The seller of an option is, in turn, obligated to sell (in the case a call) or buy (in the case of a put) the shares to (or from) the buyer of the option at the specified price upon the buyer’s request….

  • TIME DECAY

    Generally, the longer the time remaining until an option’sexpiration, the higher its premium will be.This is becausethe longer an option’s lifetime, greater is the possibility thatthe underlying share price might move so as to make theoption in-the-money. All other factors affecting an option’sprice remaining the same, the time value portion of anoption’s premium will decrease (or decay) with the passageof time.

  • In-the-money, At-the-money, Out-of-the-money

    The strike price, or exercise price, of an option determines whether that contract is in-the-money, at-the-money, or out-of-the-money. If the strike price of a call option is less than the current market price of the underlying security, the call is said to be in-the-money because the holder of this call has
    the right to buy the stock at a price which is less than the price he would have to pay to buy the stock in the stock market. Likewise, if a put option has a strike price that is greater than the current market price of the underlying security, it is also said to be in-the-money because the holder of this put has the right to sell the stock at a price which is greater than the price he would…

  • TRADING ELLIOT WAVES

    The notorious ELLIOTT WAVE,Which many traders don’t even try to learn for one basic reason ,They say its “Complex”.Hope this read will help them to grasp the basic trading strategies used with each wave. See below link

  • ECONOMIC FUNCTION OF THE DERIVATIVE MARKET

    5. An important incidental benefit that flows from derivatives trading is that it
    acts as a catalyst for new entrepreneurial activity. The derivatives have a
    history of attracting many bright, creative, well-educated people with an
    entrepreneurial attitude. They often energize others to create new
    businesses, new products and new employment opportunities, the benefit
    of which are immense.

  • FACTORS DRIVING THE GROWTH OF DERIVATIVES

    1. Increased volatility in asset prices in financial markets,

    2. Increased integration of national financial markets with the international markets,

    3. Marked improvement in communication facilities and sharp decline in their costs,

    4. Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies,
    5. Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets leading to higher returns, reduced risk as well as transactions costs as compared to individual financial assets.

  • Basic Rules for Futures Traders: Part II

    Cut losses short. Most importantly, cut your losses short, let your profits run. It sounds simple, but it isn’t. Let’s look at some of the reasons many traders have a hard time “cuttings losses short.” First, it’s hard for any of us to admit we’ve made a mistake. Let’s say a position starts going against you, and all your “good” reasons for putting the position on are still there. You say to yourself, “it’s only a temporary set-back. After all (you reason), the more the position goes against me, the better chance it has to come back…

  • Basic Rules for Futures Traders: Part I

    · Apply money management techniques to your trading.

    · Do not overtrade.

    · Take a position only when you know where your profit goal is and where you are going to get out if the market goes against you.

  • HISTORY OF GOLD TRADING

    Gold future trading debuted first at Winnipeg Commodity Exchange (know is Comex) in Canada in 1972. The gold contract gain popularity among traders, led to many countries had too started gold future trading. Which include London gold future, Sydney future exchange, Singapore International Monetary Exchange (Simex), Tokyo Commodity Exchange (Tocom), Chicago Mercantile Exchange…

  • FUTURES V/S OPTIONS

    1. RIGHT OR OBLIGATION :
    Futures are agreements/contracts to buy or sell specified quantity of the underlying assets at a price agreed upon by the buyer & seller, on or before a specified time. Both the buyer and seller are obligated to buy/sell the underlying asset. In case of options the buyer enjoys the right & not the obligation, to buy or sell the underlying asset.

    2. RISK
    Futures Contracts have symmetric risk profile for both the buyer as well as the seller. While options have asymmetric risk profile. In case of Options, for a buyer (or holder of the option), the downside is limited to the premium (option price) he has paid while the profits may be unlimited. For a seller or writer of an option, however, the downside is unlimited while profits are limited to the premium he has received from the buyer.

  • HEDGING

    The best way to understand hedging is to think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event. This doesn’t prevent a negative event from happening, but if it does happen and you’re properly hedged, the impact of the event is reduced. So, hedging occurs almost everywhere, and we see it everyday. For example, if you buy house insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters.

  • TYPES OF DAY TRADER

    BREAKOUT TRADERS
    REVERSAL TRADERS
    RANGE TRADERS

  • DAY TRADING MONEY MANAGEMENT

    Day trading as a business can be very profitable. It is probably the safest form of investing, as you are focusing on a small number of positions, you are not holding any positions overnight and you are able to enter and exit trades with pinpoint accuracy.

    However, many day traders find themselves losing due to poor day trading money management.