Share Market Basics
What is Stock Exchange ?
This is a share market in which securities (Shares and F&O) can be traded (bought or sold). There are four major stock exchanges in India for share market.
National Stock Exchange (NSE) and
Bombay Stock Exchange (BSE)- Shares and F&O of companies can be traded here for share market.
Multi Commodity Exchange (MCX) – Future Contracts of Metal (Aluminum, Copper, Lead, Nickel, Zinc), Bullion (Gold and Silver), Agro Commodities (Cardamom, Cotton, Crude Palm Oil i.e. CPO, Kapas, Mentha Oil) and Energy Commodities (Brent Crude Oil, Crude Oil and Natural Gas) can be traded here. I trade mainly in this Stock Exchange of share market.
National Commodity and Derivative Exchange (NCDEX) – Futures Contracts of Agriculture Products, Metals, Energy and Precious Metals can be traded here for share market.
Websites of these Stock Exchanges are as per the following :-
NSE – www.nseindia.com
BSE – www.bseindia.com
MCX – www.mcxindia.com
NCDEX – www.ncdex.com
What are World Share Market Timing in Indian Time (Indian Standard Time)
European share market
American share market
Asian share market
Countries and Commodities
On the basis of this information, we can know that news from which country is important for which commodity
Who is Stock Broker ?
In stock exchanges (share market) we cannot trade directly but through Broker only. Stock Broker is middleman between Traders and Stock Exchanges.
What is Brokerage Charges ?
What is DEMAT Account ?
Shares and Securities are held electronically in DEMAT account, instead of the investor taking physical possession of certificates. Stock Brokers open DEMAT account of clients. To trade using DEMAT account we are required to transfer the money into trading account. By using this money orders to sell or buy shares/securities can be placed in share market. Trading account is linked with bank account of the investor and amount of money between these accounts can be transferred very easily.
When can we trade in MCX Trading Timings?
We can trade in MCX only on working days and working hours of MCX. MCX remains closed on Saturday and Sunday. Working hours of MCX are 10:00 am to 11:30/11:50 pm. On some days MCX opens only in evening sessions i.e. 5:00 pm to 11:30/11:50 pm.
What is Square Off ?
It means selling if you have bought or buying if you have sold a MCX Commodity Future Contract. It is called exiting from a running trade.
Why do we Square Off ?
If we want to book profit or loss, then we have to square off our position. We can square of our position partially also. Let’s say an investor having 5 Lots of Crude Oil. The investor can square off 1,2,3,4 or 5 Lots at a time. Partial square off is done to book profit or loss partially. On expiry date square off will happen automatically.
Long Trade and Short Trade (or Short Selling)
When a trader buys something, it is called Long Trade and when a trader sell something without buying it, then it is called Short Trade (or Short Selling).
Stop Loss Order
Stop Loss Order is a buy or sell order, which is placed to limit the loss. It is placed in opposite direction of our position. If a trader is having long trade then sell order will be placed and if a trader is having short trade then buy order will be placed. This order is placed at a trigger price. As the spot price become equal to this trigger price, Stop Loss Order will be executed and trader will be out from his position. Let us say spot price of a commodity is ? 100 and we are planning to take risk of 5% then there will be two cases, in first case say trader is having long trade then he will place a Stop Loss Order at ? 95 and in second case say trader is having short trade then he will place a Stop Loss Order at 105. These prices ( ? 95 and ? 105) are called trigger prices.
What is a ‘Lot’ ?
Lot is a bunch of some quantity of a commodity. Let us take example; mega contract of MCX Aluminum contains 5000kg quantity. This 5000 kg quantity is called Trading Unit or Lot Size for this Aluminum Future Contract. In this ‘kg’ is called Base Value for this Future Contract. The price of commodity we see in market is for this Base Value only. If in market we see price of Aluminum ? 105, it means this is the price of 1kg (i.e. Base Value) quantity of Aluminum. If trader wants to trade commodity then he can only trade whole Lot. We cannot trade 4500kg of Aluminium in Stock Market; we have to trade in multiples of Lot Size only. There are different Lot Size and Base Values for different Commodity Future Contracts. To know the Lot Size and Base Value of Commodity Future Contracts you can follow the link.
Is there commodity of only single Lot Size ?
No, there are generally two types of Future Contracts for each commodity according to the Lot Size, Mini and Mega Future Contracts. Like for Aluminium Mini Future Contract has Lot Size of 1000 kg. To know the Lot Size of Mini and Mega Future Contracts you can follow the link.
Is there Future Contracts with only single expiry date ?
No, there are generally four types of Future Contracts for each commodity. Like if we see on 1st October 2016, there will be four Future Contracts with Oct 2016, Nov 2016, Dec 2016 and Jan 2017 expiry dates. The Future Contract of closest expiry date has more volatility (i.e. more buyers and sellers at a time). I trade closest expiry date contract because my orders execute fast.
What is NRML ?
NRML means Normal. It is a type of a product of Commodity Future Contracts. If we trade this product then our trades or positions will be carrying forwarded to next trading day till the expiry date of the contract. We can square it off before expiry date at any time.
What is MIS ?
MIS means Margin Intraday Square off, it is a type of product of Commodity Future Contracts. If we trade this product then our trades or positions shall be squared off on the same day by us or it will be automatically squared off by the Exchange. It means trades of these products cannot be carry forwarded to the next day.
Advantages and disadvantages of less margin requirements ?
Let us say a trader is having ? 3 lakh in his Trading Account and he decides to buy Crude Oil at ? 3009. With this amount of money he can buy 13 Lots (amount in account/margin amount required =300000/22778=13 Lots). The value of these 13 lots is ? 39, 00,000(approx.). Now, assume after some days price of Crude Oil increase by 10%. Then his profit will be 10% of ? 39, 00, 00 i.e. ? 3, 90,000. It means by this he gets profit of 130% on his investment. This is the magic of paying only margin amount.
If the price falls by 10%, then he will suffer with loss of ? 3, 90,000. This is the disadvantage i.e. this is very risky.
How do I avoid this risk ?
I avoid risk by taking more accurate trades and limiting my position size. My Unique Trading System (UTS) generates less trading signals but more accurate. I have developed a calculator to calculate permitted maximum number of Lots can be traded. This is developed on the basis of some factors of commodities price fluctuations. In my calculator what it is required to enter only the amount I want to invest. To see the calculator you can follow the link.