Stock Market Glossary

52 Week High is the highest price at which a particular stock has traded in the last one year. Traders and investors look at this price to help understand the stock's current value and to understand how the the markets and price trends work!

52 Week Low is the lowest price at which a particular stock has traded in the last one year. Traders and investors look at this price to help understand the stock's current value and to understand how the markets and price trends work.

In trading analysis, an abandoned baby pattern is a unique candlestick pattern. In this pattern, an upside gap doji star (where the shadows don’t come in contact) is succeeded by the downside facing black gap of the candlestick, where the shadows do not even touch. It is considered a major top reversal signal. An Abandoned Baby Pattern is very useful in alerting traders to a possible change in trend to the upside. Points to remember

• The very first bar is a large red coloured candlestick that is located within a defined downtrend.
• The second bar refers to a doji candle that gaps under the close of the first bar.
• The third bar is a large white coloured candle that opens above the second bar and it is used to showcase the changes in trader sentiment.

Elliott Wave Theory, or ABC wave theory, is a term for three-wave counter trend price movement. Here, wave A is the first price wave that is against the trend of the entire market. B wave is a corrective wave for wave A. Wave C shows the final price move to complete the counter trend price move. Points to remember

• Alphabetical labeling helps to differentiate between the degree or level of the wave. It speaks to the span of the basic pattern.
• The patterns begin with the biggest degree and work their way down to influxes of lesser degree.
• There are two sorts of waves: Impulse and Corrective. Impulse waves move toward the bigger degree wave. Corrective waves move against the bigger degree wave.

An Abridged Prospectus is a memorandum provided in Section 2(1) of the Companies Act, 2013. It includes all the significant features of a prospectus, specified by the Securities and Exchange Board of India (SEBI). Points to remember:

• It sidelines with the application form of public issues.
• It is basically a brief version of the information, containing all prescribed details in a prospectus, in order to reduce the public issue of capital.

An Acceptance Credit is a documentary credit that needs provision of a term for the bill of exchange. Usually, the bill is then accepted by the bank on which it is then discounted or drawn. The beneficiary here is paid promptly at that particular discount. This is applicable only for companies and enterprises that run a line of credit in order to grow their business. Unconfirmed acceptance credit implies that the seller goes broke and that installment won't be made. This can happen due to any number of possibilities. For example, shipment non-conveyance, reallocation by customs authority, or some other issues. Confirmed acceptance credit implies that the bank whereupon the credit has been issued, basically ensures installment as long as the terms of the letter of credit have been followed. Points to remember

• Confirmed acceptance credit is more costly to build up than unconfirmed acceptance credit in light of the fact that the issuing bank is viably ensuring installment.
• Banks may likewise make an acceptance credit offer. Thus, enabling an organization to issue time drafts not connected to particular shipments with a specific end goal to give a general working capital fund.

Accrued expenses are those expenses which are listed on the income statement but are unpaid. Accrued expenses are the liabilities that the company needs to resolve at some future date. They are listed on a company’s balance sheet as the probability of being collected is high. Although they are to be paid in the future, they are listed in the balance sheet from the day the company should expect to make the payment. Points to remember:

• They can be considered opposite of prepaid expenses.
• Accrued expenses are generally periodic, like wages, taxes etc.
• The probability of accrued expenses getting collected is high.

Example: As a company, you can release a statement of Accrued Expenses at the end of a financial year. It includes interest payments that are yet to be paid.

The accrued interest is the interest earned on a bond or loan that has not yet been paid to the lender by the borrower. Points to remember:

• The accrued interest is accumulated on a debt since the last interest payment date.
• This amount is used for calculating, at the end of an accounting period, the amount of unpaid interest that is payable by or receivable to a business.

Example For a 10% interest rate on a $10,000 loan, if the payment is to be received on the 15th day of the month, and the additional amount of interest receivable from the 16th to 30th day of the month, the total amount of accrued interest is (10% x (15/365)) x $10,000 = $41.10

Accumulation Distribution Line is a volume-based indicator that shows the cumulative inflow or outflow of money for a security.  As the name suggests, an Accumulation Distribution Line (ADL) indicates whether a particular stock is being accumulated or distributed. It is basically a cumulative indicator that uses both the price as well as the volume of the security to assess its accumulation or distribution. To do so, it identifies the disparity between a security’s price and its flow of volume. By doing so, ADL suggests how strong a particular price movement is. For instance, if the price is on a rising trend but the accumulation distribution line is falling, then it is an indication that the purchase volume is not strong enough to provide a further support to price rise. Hence, a fall in price may be witnessed in the near future. In other words, it can be said that the accumulation distribution line measures the supply and demand of a particular security or asset by looking at its price and volume variables. The accumulation distribution line was developed by famous American analyst March Chaikin. Initially, ADL was named as the Cumulative Money Flow Line by Chaikin.  What does the Accumulation Distribution Line indicate? The accumulation distribution line indicates the impact of demand and supply factors on the price of a security. It helps market participants to first assess the trends in price and then foresee how the trend will persist in future i.e., whether it will continue or reverse. To put it simply, the volume-based indicator shows the cumulative inflow or outflow of money for a security.  Let’s take an example to understand this. If the price of a particular security is on a decreasing trend but the accumulation distribution line of that security is on an upward trend, then it indicates that there is a strong buying pressure for the security which may result in the reversal in the price trend in the near future, i.e. the price might rise going forward. On the other hand, if the price of the security is on an increasing trend but the accumulation distribution line of that security is on a downward trend, it is indicative of a potential selling spree warning of a probable decline in price in the near future. As opposed to an inverse trend, if the price and the accumulation distribution line move in the same direction, for instance both are in a downward trend, it indicates that there is still strong supply, and the prices are to continue to decline further. Calculation of the Accumulation Distribution Line To calculate the accumulation distribution line, the money flow volume is used. The volume is computed using the money flow multiplier and the period volume.  Here is the step-by-step process to compute the accumulation distribution line and the formula:  

The first step in calculating the accumulation distribution line is computing the money flow multiplier using the most recent period’s close, low and high price levels. Here’s the formula:**MFM = (Close-Low) – (High-Close)/High-Low**

Where MFM = Money Flow Multiplier, Close = Closing Price, Low = Low price for the period and High = High price for the period

The second step is to calculate the money flow volume using the money flow multiplier and the volume of the current period. The following formula is used to calculate this:**Money Flow Volume = Money Flow Multiplier*Period Volume**

The Money Flow Volume calculated above is added to the last value of the accumulation distribution line in the following formula:**A/D = Previous A/D + CMFV**

Where A/D is the value of the accumulation/distribution line and CMFV is the current period’s money flow volume It’s important to note that for the first value of the line, the money flow volume is used itself as the value of the accumulation/distribution line.   The above process is repeated as and when each period ends by adding/subtracting the new money flow volume to/from the previous accumulation distribution value to get the ADL indicator.  ** ** Shortcomings of Accumulation/Distribution Line: Like many other technical indicators and tools used by stock traders, the ADL also has its own limitations. The indicator is fraught with two main limitations: Firstly, it focuses only on the closing price in the current period range and hence does not factor in the price changes from one period to another thereby creating some anomalies. For instance, let’s say a security gaps down 20% on a large volume. The price keeps oscillating throughout the day and finally closes towards the upper end. But, let’s say it is still down from the previous close by say 18%. This would result in the accumulation/distribution line to rise because even though the stock lost value, it closed in the upper end of the price spectrum. The indicator might in fact rise significantly due to high volume. Thus, traders need to stay wary of such anomalies as they can be somewhat misleading Secondly, another limitation arises from the fact that the accumulation distribution line monitors divergences. Divergences are poor signals of timing. Whenever any disparity occurs between the accumulation distribution line and the price, it does not necessarily mean an imminent price reversal. The price reversal may happen after a long time or may not happen at all In a Nutshell Accumulation Distribution Line can be a useful tool in the hands of a market participant who is looking to draw insight from the accumulation or distribution level of a stock. However, to get more reliable inputs, it is advisable to use the indicator in conjunction with other market analysis tools like chart patterns, fundamental analysis, etc. to get a better picture.

"The Accumulation Distribution Indicator Line (ADL) is an indicator that looks at supply and demand by deducing whether investors are generally buying (accumulating), or selling (distributing) a certain stock. This is identified by looking at the difference between movement in stock price and volume of the stock. The ADL is calulated with the below mentioned formula ADL = ((Close Ð Low) Ð (High Ð Close)) / (High Ð Low) * Period Volume"

The ratio of a company’s current assets to its current liabilities is known as the acid test ratio. It is a measure of the company’s ability to stay liquid during times of unexpected volatility without having to sell its product. That’s why it is called the acid-test! Can it stay liquid when things are burning? Figuratively. Points to Remember:

• The financial strength of the company is determined by this ratio.
• Since this ratio does not take into account the illiquid assets, therefore it is more robust than the current ratio.

Trying to predict future prices of an item, based on a dynamic weighting of the item’s prices in the past, is referred to as an adaptive filter. Points to remember

• Adaptive filter is a commonly used trading analysis strategy to take calls on buying or selling commodities or securities in the open market.

The Add on Method is an alternative method of paying interest after it is added onto the principal at maturity. In this method, the interest on the loan is calculated annually and multiplied by the number of years left for repayment. Points to remember:

• In the Add on Method of interest calculation, the interest is calculated as a percentage of the original principal.
• The amount of interest that is added to each payment remains the same throughout the loan.
• As compared to traditional loans, add-on interest loans prove to be more costly to borrowers, but are more profitable for financial institutions as the borrower has to pay a greater amount of interest.

Example: If ABC borrowed a loan of USD 10,000 with an annual add on interest rate of 10%, no matter how much the principal amount is at the beginning of each payment period, ABC will be still paying $1,000 every year.

An add-on offering refers to the additional shares made available to the public by a publicly trading company. This is usually done to raise capital for already existing operations, expansion of trades or to fund new upcoming projects. It is also known as Follow-on Public Offer (FPO) in the Indian markets. The company may additionally raise money through Right Issue. A Right Issue enables an already existing publicly trading company to issue more shares on the market to raise money. Points to remember:

• While add-on offerings do raise money, they tend to frustrate shareholders since it can reduce the stock prices and change ownership.
• Add on shares usually, benefit the company for the long term by lifting earnings and creating greater profits.

Example

• The company Tesla has continuously tapped the financial markets to fund newer projects while raising billions of dollars through their multiple offerings.

The adjusted futures price refers to the cash-equivalent of a futures contract that will be used to purchase an asset later on. Points to remember:

• The adjusted futures price takes into account conversion factors as well as carrying costs.
• It is calculated as futures price X conversion factor for the particular financial asset being delivered.

The Advance-Decline Line (AD Line) is a marker based on Net Advances, specified by the number of rising stocks minus the number of declining stocks. The Advance Decline Line measures the level of cooperation when the markets are advancing or are in a decline. An Advance Decline Line that ascents and records new highs alongside the basic list demonstrates solid support that is bullish. An Advance Decline Line that neglects to keep pace with the fundamental file and affirm new highs demonstrates narrowing investment and bearish market sentiment. Points to remember

• It rises when Net Advances are sure and falls when Net Advances are negative.
• The true estimate of an Advance Decline Line depends upon the starting of the stage.

This is an agreement between two parties, stating advance payments will be returned if the entity receiving these payments, does not deliver on its end of the agreement. This pertains to government bonds, non-convertible debentures (NCD) or other debt instruments. The assurance is provided by the entity accepting an advance payment to the entity making the payment. It undertakes that the advanced total will be returned if the agreement, under which the advance was made can't be satisfied. Points to remember

• On the off chance that the customer agrees to making an advance payment (the initial installment) to a provider, a bond might be required to secure the payment against default.
• An advance payment security will ordinarily be an on-request security,implying that the bondsman pays the measure of cash set out in the bond instantly on request, with no preconditions being met.

Example A contractor may get an Advance Payment Guarantee/Bond filled by the consumer.

An Adverse Excursion refers to a trade going in a direction opposite to the one desired by the trader, after she/he has executed it. For example, a drop after buying, or a rise after shorting a stock would be an adverse excursion, specified by the amount of movement in the price. The Maximum Adverse Excursion (MAE) is the biggest such movement over the life of the exchange. Points to remember

• The Maximum Adverse Excursion is utilized by traders to figure out where to put in a stop loss request for the framework that they are exchanging.
• Adverse Excursion as a term is mostly known to be used in the derivatives market.
• The only thing that can prevent the adverse excursion from getting too big as a proportion of the original investment is a strict stop-loss strategy.

Example A stock that is purchased at Rs. 500 may drop to Rs. 400, before going back to Rs. 600, then stabilising at Rs. 550. The drop to Rs. 400 is the adverse excursion, with the Maximum Adverse Excursion being Rs. 100 (i.e. 500-400).

After-hours trading is the timeframe after the market closes when a financial specialist can purchase and offer securities outside of traditional exchange hours. Pre-market trading, conversely, happens in the hours prior to the time that the market formally opens. Together, after-hours and pre-market trading duration is known as extended-hours trading. Points to remember

• After-hours trading happens right after the market gets closed.
• It gives you permission to react to the various news events before other investors can.
• The risks taken in after-hours trading are substantial and are also worth cautious consideration.

What is Algo Trading? With the rise in digitization driving the need for smart computer programs, algorithms are a part of everyone's daily lives. These algos leverage previous patterns, data trends, and instructions for a user-specific application. Recently, algorithms have been used to enhance their profit-making potential & minimize human errors. This is done under the umbrella term of 'Algo Trading.' Developed markets like the US contribute approximately 70- 80% of the equity market turnover. Algo trading in India has also increased by more than 50% of total turnover from 9% in 2010. Algorithmic trading involves automated transactions to understand when investors enter and exit trades. The lack of human intervention saves time and increases the chances of traders generating more significant swings in market prices. On that note, let's understand the concepts, strategies, advantages, and consequences of algo trading. Meaning of Algo Trading and Strategies Algo trading involves a well-designed mix of mathematical models, software codes, and formulas to enter and exit trades. The predetermined criteria follow instructions that combine to make the algorithm. This executes trades on the traders' behalf, thereby saving time from manual scans. Before making transactional decisions, these trading commands factor in volume, price, and timing. Large firms often deploy such automated mechanisms to make thousands of trades in a short period. By analyzing every quote and trade in the market, identification of liquidity opportunities, and the ability to turn information into intelligent trading decisions, algorithms have become revolutionary game-changers in the stocks, futures and options, and securities arena. Strategies Involved in Algo Trading The strategies while coding instructions impact the trading patterns by a wide margin. Here are some of the strategies in algo trading to help traders/investors identify the best algo trading strategy for them are:Arbitrage Arbitrage is when you buy stocks of the same entity from a market with a lower price and sell them in other exchanges that host slightly higher prices for that same entity. Traders often scour through real-time data to identify stocks. These stocks are trading at different prices in different markets. Traders deploy algo trading systems to profit from the difference. It is common to exploit such market inefficiencies, resulting in price differentials for a brief window. Designing and implementing an algorithm to spot tiny differences in the asset's listed price in different markets enables profitable opportunities. Trend Following This is one of the most simple algo trading strategies, which is popular among traders/investors in India. Algo traders usually follow trends like moving averages, channel breakouts, and price movements to curate codes for the algorithmic trading software. They leverage these indicators that make for the simplest executable strategies that do not deal with any kind of predictive forecasting.  The accurate trend identification capability of the algo trading system helps execute the order for the trader/investor at the opportune moment. The codes also consider the support, resistance, volume, and other indicators before transacting. Index Fund Rebalancing There always occurs rebalancing of indexes regularly, which is essentially adding or subtracting securities or modifying the weights of the existent index constituents. This is major because a fund must buy and sell securities to remain in balance with its index. This aligns its holdings with their corresponding benchmark indices. This means matching the underlying asset's current market price.  Quantitatively, the difference of around 20 to 80 basis points is pounced upon by algo trading systems to book deals for increased returns. This essentially means that algorithmic traders looking to book profits capitalise on expected trades that offer 20 to 80 basis points profits which depend on the number of stocks in the index fund right before rebalancing. Mathematical Model Tested and proven mathematical models like the delta-neutral trading strategy enable trading on options and the underlying security. The delta-neutral strategy consists of multiple positions with offsetting positive and negative deltas. This adds up to making the overall delta of the assets zero. Deltas are usually the ratio comparing the change in the price of an asset to the respective fluctuation in the price of its derivative. It involves trading on the same underlying asset's stock and derivative. This is why algo trading software is used for the identification of such classes and execution based on price changes. Expert traders often suggest deploying mathematical models as one of the best algo trading tips for risk management in a volatile market. Volume-Weighted Average Price (VWAP) By definition, VWAP is an intraday trading benchmark that stands for the average price that a security has traded at throughout the day, considering both the volume and price. Investors often look to execute orders nearer to the volume-weighted average price. Algorithmic trading enables them to break large order volumes into smaller pieces to reach the closing price goals. Using the stock-specific historical volume profiles leads to increased returns via the right timing. In practice, traders use VWAP as a tool to confirm trends and build trading systems/rules around them. Usually, stocks with prices below VWAP are deemed undervalued, and those above it as overvalued. This effectively means that if prices below VWAP move above it, traders long the stock, and vice versa. Time-Weighted Average Price (TWAP) By definition, TWAP is pulled by averaging the entire day's price trend (including open, high, low, and close points). Following this, every day's average price is taken to calculate the average of the entire duration's price. Drawing parallels to VWAP, this strategy aims to break big order volumes into smaller chunks. In this strategy, traders incorporate divided time slots between the start and end time to deploy algo trading systems. The ultimate aim is to minimize the market impact by executing an order close to the average price between the start and end times. In practice, high-volume traders use TWAP to execute their orders in smaller chunks when the market price is closer to TWAP, making the execution smooth. Mean Reversion Mean Reversion relies heavily on the concept that no matter the lows and highs, the asset price is bound to revert to its mean value or average rate. So algo traders define the asset's price range and ensure that the asset transaction occurs if it pops in or out of the specified range. Advantages of Algo Trading Algorithmic trading substantially cuts down costs for large-scale brokerage firms or institutional investors. Since it enables faster and smoother execution of orders, traders can swiftly book profits from short-lived price fluctuations.   This is one of the major reasons algorithms are incorporated into scalping trading systems to facilitate rapid securities transactions. To sum it up, algo trading minimizes human error, executes large volume orders quickly, identifies price changes across markets, and reduces additional transaction costs. Therefore, to answer the question 'Is algo trading profitable?' Yes! Algorithmic trading is profitable, provided that one gets a few things right. Drawbacks of Algo Trading Though there are many algo trading benefits, there are also a few downfalls that traders need to be aware of. The liquidity introduced via rapid selling/buying orders disappears instantaneously, leaving traders devoid of the chance to profit from price fluctuations. The high-speed execution of trades negatively impacts live trades and settlements. This limits the power of trading platforms and financial markets. Algo trades also introduce unwanted volatility into the markets. Also, choosing the right algo trading app or software is difficult for traders as unlimited options are available in the market. Picking the right one is crucial as they trust their hard-earned money in their trading software. Conclusion Algo trading is the best avenue for traders looking to minimize errors related to human intervention and build profits. Algo trades demand data analysis, coded instructions, and an understanding of the financial market. Investors must learn algo trading before doing algorithmic trading with real money. FAQs **How to Become Proficient in Algorithmic Trading? ** To become proficient in algorithmic trading, you need to look at quantitative analysis or quantitative modelling, as it is significantly used in algorithmic trading. You'll require trading expertise or prior financial market experience because you'll be investing in the stock market. The trading sense will help you build a more intuitive algorithm that seamlessly tracks patterns and provides insights. Finally, because algorithmic trading frequently uses technology and computers, you'll probably need experience with coding or programming. Hands-on experience with software development, data structures, and algorithms is a major plus on the road to building cutting-edge algorithmic trading bots. From a language perspective, C++ is a popular programming language among algorithmic traders because it is very effective at processing large amounts of data. However, a more intuitive and manageable language like Python can also be considered a better choice for financial professionals who want to start programming than C or C++. Is Algorithmic Trading Legal? Why? Although algorithmic trading is permitted, some individuals disagree with how it could affect the markets. Although these worries may be valid, no regulations or legislation prohibit retail traders from using trading algorithms. However, the ongoing investment in technology in computers and other fields suggests that algo trading is widely accepted in the western world. Essentially, it is a step in the evolution of trade resulting from technological advancement. In other words, there is no justification for categorising algorithmic trading as criminal. To put it another way, the legality of algorithmic trading depends on the countries and the sort of trader or investor. Only institutional traders may use algorithmic trading lawfully in some nations. For instance, institutional investors and traders in India are the only ones allowed to use algorithmic trading. Retail traders and investors are not permitted to use it. SEBI, the Securities and Exchange Board of India, has not approved algorithmic trading for retail traders and investors. However, algo trading is treated the same as any other trading in the US and Western countries. What are the Technical Requirements for Algorithmic Trading? The last step in algorithmic trading is to put the algorithm into practice using a computer programme after backtesting. This includes testing the algorithm on historical periods of past stock-market performance to determine if it would have been profitable. The difficult part is integrating the determined strategy into a computerized system that can access a trading account and accept orders. You'll also need network connectivity to access trading platforms, live market data streams for placing buy/sell orders, historical data for backtesting, and technical infrastructure. Computer programming skills are not required.

Algorithmic Trading is the process where a pre-programmed trading instruction is fed into the computer program in order to execute an automated trade. Specific instructions can be assigned for variables for example: time, price and volume of orders.

It can be defined as a buy or a sell order that needs to be executed completely or not at all. Partial execution of an order is not possible. Either the broker should fill out the order completely or not at all. It is sometimes called a duration order. Usually, an investor tells a broker how to fill the order, thus impacting its period of operation. Points to remember:

• An all or none order is executable only when there are enough shares available to make a transaction. In case this condition is not fulfilled, the order is cancelled.
• They are similar to fill or kill orders.
• The main disadvantage of an all or none order is that a change in the price of the stock during the transaction process will impact the total cost incurred by the investor for the order.

The measure of an asset’s performance, relative to a benchmark or market index is known as Alpha Figure. Points to Remember:

• It takes into account the active returns on an investment.
• Though it refers to the percentage measuring the performance, it is represented using a single digit number.
• It is also called an ‘abnormal rate of return’ or ‘excess return.’

In the trading analysis, an Anaume Pattern is a depletion design (signifying "gap filling") made out of five candles on the chart. It happens when the hole is filled in after a market cost has changed bearings. This pattern combined with an alternate pattern, demonstrates a solid potential of a bullish sentiment returning. Basically, a unique weariness design made out of five candles. The anaume happens when the hole is filled. Points to remember

• Seeing the hole shaped toward the start of the pattern uncovers that upon an inversion of course, the purchasers have ventured in with an extraordinary measure of energy.
• A Candlestick flag shows up, a Doji or Harami, Hammer, or some other flag that would demonstrate that the offering has ceased.
• Gaps happen in a wide range of spots and structures. Some are anything but difficult to see, some are harder to perceive.

A person starts with a first estimation (anchor) and then makes incremental adjustments in view of extra data. These adjustments are typically inadequate, giving the underlying anchor a lot of impact over future appraisals. Points to remember

• Costs examined in arrangements that are lower than the anchor may appear to be sensible, maybe even modest to the purchaser, regardless of whether said costs are still moderately higher than the genuine market esteem.

Example: If an investor wants to buy 1 gm of Gold. His budget is Rs. 2,700. That’s his anchor. However, if the market cost is Rs. 2,800 then he would make an adjustment of Rs. 100 and extend his budget.

The change in earnings for a company, between the most recent fiscal year and the preceding one is called the annual earnings change. Points to remember:

• This change is due to fluctuations in the company’s outcome.

Example : Let’s assume that your company initially earned a total revenue of Rs. 50,000 during the previous year and earned a total revenue of Rs. 70,000 this year. Then your Annual Earnings Change would be calculated as follows : Annual Earnings Change = Rs. 70,000-50,000= Rs 20,000

In any given year, the expenses incurred to manage the funds by an Asset Management Company are called Annual Fund Operating Expenses. Points to Remember:

• The Asset Fund Operating Expenses is a percentage of the fund’s total assets.
• These expenses generally include transaction costs and management fees.

The AGM is a compulsory annual gathering of a company’s shareholders in order to report and present that year’s important events, discuss the company’s strategies and plans for the upcoming year/s and hold elections for their board of directors. Points to remember

• Only shareholders with voting rights vote on issues, and other matters of concern. They also vote to select their board of directors.
• Shareholders who do not attend the annual meet vote through proxy, online or mail.
• The company’s by-laws include the rules that govern AGMs. However, the most common discussions at an Annual General Meeting (AGM) of a company include minutes of the previous year’s meetings, financial statements, ratification of the director’s actions and election of the board of directors.

The amount of profit made by the company from their net sales, expressed as a percentage is known as Annual Net Profit Margin. It is calculated over one fiscal year. Points to remember:

• It is expressed as a ratio of net profit to the total revenue of the company.
• Publicly traded companies release these profit margins quarterly and mention it in their annual report as well.
• Low-profit margins do not necessarily mean low profits for the company.

An annual report of a company is an exhaustive report of a company's activities that took place during the previous year. Usually, shareholders look at annual reports in order to measure a company's financial performance and other activities.

The change in sales between the recent fiscal year and the preceding year, expressed as a percentage, is known as the Annual Sales Change metric. Points to remember:

• The sales taken into consideration for calculating this parameter is on an annual basis.
• This change takes place due to fluctuations in market conditions as well as the business outcome.

It is the buying and selling of securities in different markets at the same time so as to make a profit by taking an advantage of differing prices of the same asset.

When a person buys security from one market at a certain price, and sells it in another market at a higher price, the process is known as Arbitrage Selling. Points to remember:

• The profit earned by such selling is due to a temporary difference between the prices of the security in different markets.
• It is also considered as riskless profit for the trader.

Example: If the price of Reliance Stock in NSE is Rs. 1000 and in BSE is Rs. 1000.10 then a trader can purchase the stock in NSE and sell it in BSE to make a profit.

It is the act of putting up securities for sale (or offering) by a seller. It is accompanied by an Ask Price. Points to remember:

• The basis of the stock quote is formed by combining the asking price and the bid price.
• The ask quote can also contain information regarding the amount of security to be sold in addition to the price.

The lowest price at which the seller is willing to sell the security is known as ask price. Also commonly known as buying price. Points to remember:

• The asking price and bid price are always quoted together.
• The ask price is typically higher than the bid price.

The amount of the security that is available at the Asking Price is known as the Ask Size. In other words, the number of securities being put up for sale is denoted by the Ask Size.

When funds are diversified based on risk assessment the process is termed as ‘Asset Allocation.’ The assets can be diversified into different categories like real estate, stocks, bonds, various sectors of the economy and lots more. Points to Remember:

• It is one of the most crucial steps in portfolio management.
• This process also involves determining how much money should be put in each asset class.

A fund that invests over a range of assets - such as stocks, bonds and others is called an Asset Allocation Fund. This is unlike a regular mutual fund, which may be exclusively focused on equity or debt instruments. Points to Remember:

• A Balanced Fund is the most popular type of Asset Allocation Fund.
• It delivers a diversified portfolio to its investors.

Registered with SEBI, an Asset Management Company is one that handles all the assets within the mutual funds it manages, accepts investments from its customers and takes related decisions on how to run and restructure its mutual funds. Points to Remember:

• AMCs have access to larger resources. That’s why they can provide more diversification to their clients.
• Apart from mutual funds, they may manage hedge funds and pension plans as well. In return, they charge a commission or service fees to their investors.

Asset Management Company (AMC) is a company that invests its client’s pooled funds into Securities that match their declared financial objectives. Asset management companies provide you as an investor with more diversification and investing options than you would have gotten by investing in a pool of Securities by yourself. Investing in the schemes of AMC is a financial tool that has in-built diversification. You, as an individual investor, can invest your money in different Securities at the same time. You will then get proportional returns on your investments. The requirement for a minimum investment is often waived when investing in AMCs, whereas, there may be a minimum investment requirement when investing in multiple Securities on your own. Here is a list of Asset Management Companies that offer schemes on the Upstox Mutual Fund platform:

• Aditya Birla Sun Life Asset Management Company
• Axis Asset Management Company
• Bank of India Asset Management Company
• Baroda BNP Paribas Asset Management Company
• Canara Robeco Asset Management Company
• DSP Asset Management Company
• Edelweiss Asset Management Company
• Franklin Templeton India Asset Management Company
• HDFC Asset Management Company
• HSBC Asset Management Company 
• ICICI Prudential Asset Management Company
• IDBI Asset Management Company
• IDFC Asset Management Company
• IIFL Asset Management Company 
• IndiaBulls Asset Management Company
• Invesco Asset Management Company
• JM Financial Asset Management Company 
• Kotak Mahindra Asset Management Company
• LIC Asset Management Company
• Mahindra Manulife Investment Management Private Limited
• Mirae Asset Asset Management Company
• Motilal Oswal Asset Management Company
• Navi Asset Management Company 
• Nippon India Asset Management Company
• Parag Parikh Financial Advisory Services Asset Management Company
• PGIM India Asset Management Company
• Quant Asset Management Company 
• Quantum Asset Management Company
• SBI Asset Management Company
• Samco Asset Management Company 
• Shriram Asset Management Company
• Sundaram Asset Management Company
• Tata Asset Management Company
• UTI Asset Management Company
• WhiteOak Asset Management Company 

Kindly visit the Upstox Mutual Funds platform if you wish to invest in Mutual Funds run by these Asset Management Companies.

Everything from money to securities to real estate that is owned by the company and adds to its bottom line, is known as assets. An asset could be tangible and Intangible and both has bearing on the balance sheet of the company. Points to remember:

• Assets are always mentioned on the company’s balance sheet.
• Assets increase the value of the company and provide future benefits.
• Assets can improve sales and produce cash flow if needed, in future.

The price of the last traded stock at the end of the day is known as ‘At the Close.' Points to remember:

• It is important as it provides information about the momentum and the direction of the stock.
• Traders believing in sudden changes in the last few minutes of the trading day tend to place orders at this price.

When the strike price of the option is identical to the price of the stock, the situation is termed as ‘at the money.’ An option placed in an ‘at the money’ situation is called an at the money option. In such an option, the strike price matches the price of the stock. Points to remember:

• At the money describes the relationship between the option’s strike price and the security’s price.
• This option has no intrinsic value.
• The trading activity tends to be high when options are at the money.

Example: If the strike price of the option is 10000 and the spot price is also 10000 then the relationship between them is termed as ‘At the Money’ option.

An ‘at the open’ is a directive of selling or buying securities at the very beginning of the day when trading opens. Points to remember:

• If the open orders are not executed at the beginning of the day, they get canceled.
• If the closing price of the stock on the previous day tends to affect the opening price on the next day, then At the Open orders are placed.

A marketplace instrument where potential buyers bid on a particular product, assets and/or services. The person who places the highest bid purchases the item on auction. Historically, auctions were a group affair where the buyers, seller and an auctioneer would be in the same place. Potential buyers would then place their bids in a competitive setting and the auctioneer would act as the moderator or mediator between the seller and the buyer who ends up being the one who places the highest bid. In today's digitally savvy world sellers can place their items on sale and buyers can place their bids while sitting at their desks in the office or at home. Online shopping sites such as E-Bay act as the auctioneer in this scenario where people can bid for products and purchase according to the traditional principles of auction.

An authorized capital or an authorized share capital is the maximum equity capital that a company is authorized to issue in order to allocate them to shareholders. Points to remember:

• The capital that is authorized to issue is called the ‘issue share capital’ of that company.
• The authorized capital can change along with the shareholder’s consent.
• The authorized capital is usually not fully made use of by the company. This is done in order to keep some room for future issuing of additional stock in emergency situations.

When a small amount of money is directly deducted from your (investor’s) bank account and invested in a mutual fund of your choice, the entire process is called an Automatic Investment Plan. It is also commonly called a Systematic Investment Plan. You can regularly purchase units of a particular fund at the market rate of the particular day of the buy. A predetermined amount will be deducted from your account at regular intervals. You can specify the interval as per your investment goals. SIPs can be daily, monthly or quarterly. A major feature that differentiates a SIP from a lump sum purchase of mutual funds is that you buy the units at different rates, i.e. the NAV (Net Asset Value) of that particular day in a SIP. Points to Remember:

• It is one of the most popular methods of investment in mutual funds, since it allows investors to skip having to individually move funds themselves.
• Either the funds are deducted from the paycheque or can be paid from a personal bank account.

Automatic reinvestment is an investment option in which the money earned from a fund’s dividends or capital gains is used again automatically to buy more units in the funds. Points to Remember:

• Using this investment strategy, an investor can benefit from the power of compounding.
• Investors usually adopt this strategy if the fund is already making them profits.
• The gain from the funds is not distributed to the investor. Instead, it is used for buying more units of the same fund.

Autoregression is the use of previous data in order to predict the future data. The prediction is done by taking the weighted sum of the previous values. Points to remember:

• In order to predict values using autoregressive models, the past values should impact future values.
• It minimizes the mean squared error.

The average number of securities traded per day over a specific period of time is known as the average daily volume. The average trading volume can increase or decrease according to the changing views of the public regarding a security. The average trading volume influences the price of a stock. Points to remember:

• Greater the average trading volume, greater the liquidity of a stock.
• In case of a low trading volume, the risk of price changes is high. This is because a smaller number of orders placed at varying intervals may move the price by large amounts every time they get executed.
• The average daily volume is a measure to determine the overall market liquidity of a stock.

P/E stands for price/earnings. The average P/E ratio is the current price (market price) of a share divided by the earning per share. The P/E ratio is expressed as a multiple of earnings. Greater the P/E ratio, greater the amount the investor is willing to shell out. In case a company goes into loss, the P/E ratio is considered to be zero or is said to fail to exist. Points to remember:

• High P/E ratio means that the stock is expected to rise in value in future.
• A low P/E ratio doesn’t necessarily suggest loss, but might also suggest undervaluation.
• When P/E ratio is greater than average, it is believed that the stock market is overvalued.

ATR is a kind of technical analysis indicator that helps a trader or investor assess market volatility and make informed decisions. With the help of ATR, traders tend to get a better understanding of the price movement's intensity over a given period. ** **As a trader you could be keeping a watch on various technical analysis indicators to assess the market volatility. When it comes to protecting your hard-earned money in the risky world of stock trading, a few tools may become your saviour.  Market participants resort to various tools or indicators that help them make informed decisions when it comes to investing in an asset class. Average True Range (ATR) is one such popular indicator that helps traders assess risks and know about good stop-loss levels. Let’s discuss the various intricacies of ATR and know its definition, calculation and practical applications. What is Average True Range (ATR)** ** ATR is a kind of technical analysis indicator that gauges market volatility. ATR theory was first developed by J. Welles Wilder, the American real estate developer known for introducing the Relative Strength Index (RSI) and the Average Directional Index (ADX).  With the help of ATR, traders tend to get a better understanding of the price movement's intensity over a given period. ATR Calculation** **As far as ATR calculation is concerned, it involves a multi-level process. The main goal is to get to a True Range (TR) for each period and then find the average of these True Ranges. The True Range is determined by choosing the highest of the following three values:

Current High minus Current Low
Absolute Value of the Current High minus Previous Close
Absolute Value of the Current Low minus Previous Close

Average True Range (ATR) Formula ATR = (Previous ATR * (n – 1) + TR)/n** ** Where, n = number of periods or bars and TR = True Range. ATR is derived from a 14-day simple moving average of a series of TR indicators.  Talking about the trading view, one can see the ATR indicator showing as a line underneath the chart. Even though it can be calculated on any timeframe, ATR is generally discussed and interpreted in terms of the daily timeframe – which means that ATR can tell a trader how much a stock will go up or come down in a particular trading day. ATR Value Interpretation** ** As a trader, understanding ATR values is important for you. Because, a higher ATR score suggests heightened volatility, which means larger price movements. Similarly, a lower ATR score means less volatility and comparatively smaller price fluctuations. By analysing ATR values, you can tailor strategies to suit the prevailing market conditions. Practical applications of ATR** ** Fixing stop-loss levels** ** One of the key ATR applications is in marking stop-loss levels. Traders use a multiple of the ATR value to set a buffer that accommodates normal price fluctuations. With this dynamic approach, you can adjust the stop-loss levels while keeping in mind the market's volatility. Position sizing ATR also helps in determining the exact position size for a trade. By including the volatility measure, traders can easily know their position sizes and also be aware of the risks, thus avoiding overexposure during periods of high volatility. ATR's limitations** ** Even though the ATR is beneficial and a key tool for traders, it has some limitations. Traders do not get directional information from ATR, and it only focuses on volatility. Furthermore, ATR might not be as useful in highly trending markets, especially when volatility is constant. To sum up Overall, the Average True Range (ATR) as an indicator is a boon for traders, helping them gauge market volatility and make key investment decisions accordingly. ATR's versatility as far as its applications are concerned, spanning from fixing stop-loss levels to gauging trend strength, sets it apart from many other tools. It is particularly helpful for those who look for a complete understanding of price movements. Traders who completely understand and interpret ATR values find themselves ahead in the game as they can easily navigate the volatility with more confidence.

Average True Range (ATR) is a useful indicator and can be applied to stocks and indices. It is the measure of volatility of a price range. The ATR is a moving average.

When an investor buys more securities at a lower price than the initial investment, the move is called averaging down. It is done in order to reduce the average cost per investment unit. Points to Remember:

• Averaging down helps in reducing the net cost of investments, leaving more room for gains.
• On the contrary however, if the investment value continues to fall after averaging down, it may lead to more losses.

Example For example, say a person buys 10 shares at Rs. 100 each (Total= Rs. 1000). Now, say the market price drops to Rs. 80 per share and he again buys 10 more shares (Total= Rs. 800). Now the average purchase price becomes (1000+800/20)= Rs. 90. This shows that the original cost price was reduced by Rs. 10.

When an investor exits or sells a mutual fund, they need to pay a certain amount of commission or fee which is called as Back End Load. This is also known as an exit load. It is not applicable to all fund houses. Usually, it is charged by a few fund houses only. However, it is a cost that is to be borne by the investor. Points to Remember:

• The back end load is charged in order to reduce the number of withdrawals.
• The fee is a percentage of the holdings being sold by the investor.

Back months refer to the available futures contracts for a commodity that has expiration farthest into the future. Points to remember:

• The liquidity of a back month futures contract constantly increases, as it approaches the expiration date.
• Back month contract premiums are usually higher than those of front month contracts.
• Back month contracts are also referred to as far month contracts.

Backtesting is a technique to test the trading strategy on historical data which is relevant in order to ensure its viability. It is also known as “interpreting the past.” If the results of backtesting meet the required standards, then the trading strategy can be used by the trader with actual capital to gain profit. But, if it does not meet the necessary standards, then it needs to be modified and tested again. Points to remember:

• A backtesting procedure should reflect reality to the largest extent.
• An important parameter tested using this technique is the robustness of the trading strategy.

Balance sheet is a financial statement that represents the company’s assets and liabilities as of a specific date. The difference between these two is termed as a company’s net worth. Points to remember:

• Balance sheet works on the following simple equation:Assets= Liabilities + Shareholder’s Equity
• The equation indicates that the company should pay for all its assets by either borrowing money i.e. liabilities or by taking it from the investors which is shown by second term on the right hand side.

Balanced Funds are usually set up for those investors who look for a blend of safety, sizeable income and modest capital appreciation. The amount in these kinds of funds should remain balanced i.e. between a certain range of predetermined miniumum and maximum amount.

A mutual fund that invests in and generates its return from a combination of equity and debt assets is known as a balanced mutual fund. It is geared primarily towards investors who are risk averse but desire high returns. Points to Remember:

• It invests in stocks as well as bonds.
• A balanced mutual fund will have a certain percentage dedicated towards equity instruments and a certain percentage to fixed income instruments.

It is the period when a stock shows minimum downward or upward movement. In other words, the stock trades in sideways, which forms signature patterns like cup with a handle. Points to remember:

• A basing stock indicates that it has equal amounts of supply and demand.
• If a stock has had a significant decline or advance, then basing is a common phenomenon.

Basis refers to the difference between the futures price and the current cash price of the same commodity. Points to remember:

• In case of a futures market, basis is the cash price of the commodity traded minus its futures price.
• The change in relationship between the cash price and future price of the commodity affects the value of the futures as a hedge.
• Unless specified, the basis is generally calculated by using the price of the nearby futures contract month.

Allotment is the process of allocating shares to shareholders, based on prior agreements, most commonly seen in an IPO. This allotment of shares is based on conditions that must be satisfied before the shares are issued. Points To Remember: After the closure of an issue, the bids that are received from the shareholders are put under different categories including:

• Firm allotments
• Qualified Institutional Buyers (QIBs),
• Non-Institutional Buyers (NIBs), and many more.
• After classification of the received bids, the oversubscription ratios are then calculated for the respective groups against the shares reserved for them. The bids are then aggregated amongst different buckets based on their applied shares. The calculated oversubscription ratio is then added to the applied shares.
• This process is governed by SEBI’s ICDR regulations in India.

Bear Call Spread Option Strategy The Bear Call Spread strategy can be adopted when the investor feels that the stock/index is either range bound or falling. The concept is to protect the downside of a Call Sold by buying a Call of a higher strike price to insure the Call sold. This is a fairly complex strategy and should be used by advanced traders. In this strategy the investor receives a net credit because the Call he buys is of a higher strike price than the Call sold. The strategy requires the investor to buy out-of-the-money (OTM) call options while simultaneously selling in-the-money (ITM) call options on the same underlying stock index. This strategy can also be done with both OTM calls with the Call purchased being higher OTM strike than the Call sold. If the stock/index falls both Calls will expire worthless and the investor can retain the net credit. If the stock/index rises then the breakeven is the lower strike plus the net credit. Provided the stock remains below that level, the investor makes a profit. Otherwise the investor could generate a loss. The maximum loss is the difference in strikes less than the net credit received. **When to Use:**When the investor is mildly bearish on market. **Risk:**Limited to the difference between the two strikes minus the net premium. **Reward:**Limited to the net premium received for the position i.e., premium received for the short call minus the premium paid for the long call. **Breakeven Point:**Lower Strike + Net credit Example Mr. XYZ is bearish on Nifty. He sells an ITM call option with strike price of Rs. 2600 at a premium of Rs. 154 and buys an OTM call option with strike price Rs. 2800 at a premium of Rs. 49. **Strategy:**Sell a call with a lower strike price (ITM) + Buy a Call with a higher strike (OTM). Know more about Online Trading Strategies at our Knowledge base Section.

Overview This strategy requires the investor to buy an in-the-money (higher) put option and sell an out-of-the-money (lower) put option on the same stock with the same expiration date. This strategy creates a net debit for the investor. The net effect of the strategy is to bring down the cost and raise the breakeven on buying a Put (Long Put). The strategy needs a Bearish outlook and since the investor will make money only when the stock price/index falls. The bought Puts will have the effect of capping the investor’s downside. While the Puts sold will reduce the investors costs, risk and raise breakeven point (from Put exercise point of view). If the stock price closes below the out-of-the-money (lower) put option strike price on the expiration date, then the investor reaches maximum profits. If the stock price increases above the in-the-money (higher) put option strike price at the expiration date, then the investor has a maximum loss potential of the net debit. **When to Use:**When you are moderately bearish on market direction. **Risk:**Limited to the net amount paid for the spread i.e. the premium paid for long position less premium received for short position. **Break Even Point:**Strike Price of Long Put—Net Premium Paid Example Nifty is presently at 2694. Mr. XYZ expects Nifty to fall. He buys one Nifty ITM Put with a strike price Rs. 2800 at a premium of Rs. 132 and sells one Nifty OTM Put with strike price Rs. 2600 at a premium of Rs. 52. Strategy: Buy a Put with a higher strike (ITM) + Sell a Put with a lower strike (OTM) Know more about online trading and trading strategies at knowledge base section.

In Best Efforts Underwriting, the underwriters try their best to sell all the securities, but they are in no way obligated to purchase them. Points to remember:

• If demand from customers is low, it is highly possible that best efforts underwriting will be used.
• Under best efforts underwriting, if any securities are not sold, then they are returned to the issuer directly.

Any market risk associated with any kind of security is measured in terms of Beta. Also known as beta coefficient, it is the ratio of historical returns of an individual stock to the historical returns of the market. Points to remember:

• Calculation of Beta is done using regression analysis.
• It is mostly used in CAPM (Capital Asset Pricing Model) to calculate the expected returns of the asset.

Example: If the stock’s value increased by 10% and the market rose by 8%, then the value of beta is 10/8= 1.25.

Block trade, as the name suggests, is an exchange of a fixed number of securities at an agreed price between two parties. The number of securities to be traded is significantly larger than ordinary trade deals. In a block trade, a single purchase or sale of a stock involves 10,000 or more shares. In a nutshell, block trade is done with an intent of investing. Points to remember:

• If in case, the block trade is conducted in an open market, traders need to be careful with the trading as it might cause major fluctuations in terms of volume, and can also impact the market value of the bonds or shares that are being purchased.
• The block trades are generally conducted with the help of an intermediary known as a Block House.
• Block trades are known to be more difficult compared to others as it exposes the broker/dealer to more risk.

A mutual fund that invests in blue chip stocks (a large established company with a proven track record of returns), is called as Bluechip fund. Points to Remember:

• Bluechip stocks are known to operate profitably even in adverse market conditions, which adds to the stability and performance of a bluechip fund.
• An investor investing in these stocks can track the performance by monitoring the Bluechip Index.

Also known as Clearing Corporation, the Board of Trade Clearing Corporation acts as a guarantor for all the trades cleared and settles all the trades made at the Chicago Board of Trading. It also ensures that at the end of the day, all the losses are collected and gains are credited. Points to Remember:

• The corporation ensures that all the trades take place in a smooth manner. In other words, they become the buyer to every seller and seller to every buyer.
• It is an independent organization, efficiently handling complex transactions like futures contracts.

Bollinger Band helps investors ascertain whether a particular stock is being oversold or overbought in the market. A Bollinger band is a tool for technical analysis developed by American author and financial analyst John Bollinger. The tool is constituted by a set of trend lines and its purpose is to give investors an idea about when a particular stock is being oversold or overbought. Bollinger Bands show two important indicators, like positive standard deviation and the negative standard deviation, from the simple moving average, which is typically a 20-day simple moving average (SMA), of the price of a particular security. The indicator can be adjusted as per individual preferences. In short, Bollinger Band is composed of three lines namely, the SMA line or the middle band, the upper band and the lower band. What does the Bollinger Band indicate? Bollinger Band helps investors ascertain whether a particular stock is being oversold or overbought in the market. It is believed that the closer the price is to the upper band, the more overbought the stock is. Similarly, when the price is closer to the lower band, it could be an indication that the stock is being oversold. Patterns in the Bollinger Bands Breakout Majority of the stock price movement occurs between the upper band and the lower band. When the price breaks the upper or the lower band to move beyond them, the Bollinger Band is said to be on a breakout. There is a common misconception among market participants that a breakout in a particular direction signals a buy or sell of the stock. In reality, the breakout is not a trading signal and it provides no clue to the extent and the direction of future movement. Squeeze When the upper band and the lower band come closer together compressing the middle band, the Bollinger Band is said to witness a squeeze.  What does this squeeze indicate for the market participants?  It shows a period of decreased stock volatility. More often than not, it is considered to be an indication of trading potential as it may signal increased volatility in future. As opposed to this, when the bands move far apart from the middle band, it is considered to be an indication of an exit potential and it may signal decreased volatility in future. Calculation of the Bollinger Bands The upper and lower bands in the Bollinger Bands are typically 2 standard deviations apart from the 20-day Simple Moving Average of the stock price (denoted by the middle band) in the respective direction.

Hence, the first step in calculating the Bollinger Bands is to calculate the Simple Moving Average (SMA) of the security under consideration. Generally, a 20-day SMA is taken into account. The closing price for the first 20 days is taken as the first data point. This is to calculate the middle band.

The next step is to calculate the standard deviation of the security price for the upper band. It typically measures as to how far numbers are from an average value. For this the moving average of the closing price of a security is taken into consideration and standard deviation is added. 

Formula= 20-day SMA + (2*20 Standard Deviation of closing price)

To calculate the lower band, first compute the moving average of the close and subtract standard deviations from it. 

Formula= SMA 20-(2*20 Standard Deviation of closing price). Complementary Indicators A lot of technical indicators work best when paired with other indicators. As far as Bollinger Bands are concerned, they work the best with Relative Strength Indicator (RSI) and the BandWidth Indicator which measures the width of the bands with respect to the middle band. Shortcomings of Bollinger Bands The Bollinger Bands are computed using a simple moving average. Since a simple average gives equal weightage to older and recent data points, fresh and more relevant information may get mixed with outdated data points and become less relevant and less indicative. The calculation elements (i.e., the 20-day SMA and the 2 standard deviations) are random and not based on some solid reasoning. It might not work accurately for every person in every situation. It is hence recommended that market participants use the Bollinger Bands according to their own unique situations and should also pair them up with other relevant indicators to get a better picture. In a Nutshell Bollinger Bands can be a useful tool in the hands of a market participant who are looking to draw insight from the oversold or overbought position of a stock. The squeeze and breakout elements of the concept also help in indicating expected volatility in the market. However, to get more reliable inputs, it is recommended to use it with other relevant indicators.

Book building is a price discovery method in which the company issuing the shares doesn’t fix a specified price of the shares issued. Instead, it provides an indicative price range or a band. This means that the knowledge of the price of the issued shares is unknown in advance. Points to remember:

• In a book building process, the demand of the shares is identified every day while the book is built.
• The book is filled with prices that investors indicate to pay per share.
• After the book is closed, the price is determined by a Book Running Lead Manager by analyzing the book’s values.
• This process is governed by SEBI’s ICDR regulations in India.

Book Running Lead Manager (BRLM) plays an important role in the complete procedure of an Initial Public Offering (IPO). It is necessary to appoint a solid BRLM for a successful IPO. Not only do they follow up in creating marketing strategies for the company’s IPO, but also manage and determine the pricing, compliance and success of the issue. Points to remember:

• An important responsibility of the BRLM is creating a book (during the book building process filled with potential investors and the prices they are willing to pay for the public shares). This helps in determining the price of the shares in the IPO.
• The BRLM also functions as the centre point of all information related to the IPO process.

Within a certain time period, the book to bill ratio is the ratio of new orders of the company to the shipments. It is widely used in semiconductor industry. Points to remember:

• If this ratio is greater than 1, it shows sales growth.
• Shrinking sales are shown by book to bill ratio less than 1.

The electronically recorded securities that contain the creditor’s name, tax identification number and the amount are called book-entry securities. Points to remember:

• No paper certificates are issued for the proof of ownership. Since the records are maintained digitally, they are easy to maintain, move around and transfer ownership for.
• They are also known as uncertified securities or paperless securities.
• In the Indian context, book-entry refers to dematerialized or “demat” mode of storing securities.

Orders that do not trade upon entry immediately are known as booked orders. Points to remember:

• They are also known as outstanding orders.

A company’s net after-tax profits are known as the bottom line. It gets its interesting name for the simple reason that it is mentioned at the bottom of the income statement! Points to remember:

• Profits = Revenue generated - Expenses
• That number generated from the above formula is mentioned at the bottom of the income statement. Two ways to increase the bottom line of a business are by growing the revenue or by cutting costs.

A bought out deal is a process in which a company offers securities or shares to the public, through a sponsor. The sponsor can be a bank, any financial institution or even an individual. This method can be opted for only by private companies, as per SEBI rules. Points to remember:

• Terms of this method are agreed upon by the company and the sponsors.
• This method involves three parties: the company’s promoters, the sponsors and the co-sponsors.
• A bought out deal helps the company in saving time as well as the costs involved in a public issue.

When a stock hits support (a price on the chart where it faces resistance to further dips) and then moves up sharply, the phenomenon is known as ‘Bounce’. It may hit the support in the form of a trend line, a moving average or combination of these. Points to remember:

• Not all supports are strong enough to create bounce. Bounces which fail to ensure a sustained rise are called a dead cat bounce.

When an investor locks an arbitrage profitable position that involves no risk, then it is known as box spread. Points to remember:

• It provides minimum amount of risk.
• A box spread occurs when there is a dual option position that involves identical expiry dates of bull and bear spread.

A bracket order is a way in which a trader can limit her/his loss. A trader can "bracket" an order and set two orders on the opposite ends i.e. she/he can place a sell limit order on both the high-side and the low-side.

The biggest advantage of a bracket order is that it helps traders in managing time by combining multiple orders in one transaction. Using this tool, day traders can easily take positions in multiple stocks without having to monitor the minute-by-minute movement of individual stocks. Stock markets can be daunting, especially for day traders. It can be overwhelming to take quick decisions in a complex financial world where the dynamics change in a brink of a second. In such a fast-paced environment, risk-management tools like bracket orders can be a blessing for day traders. Bracket order is a trading technique where in your main order is placed along with two more orders – a stop-loss order and a target order. This means that you are taking a single trading position with three interconnected orders. So, with just one click, you are building a complete trading strategy by deciding the levels where you would want to book profits, as well as by placing a risk limit through a stop-loss order in case the stock movement turns unfavourable. As this creates a bracket around your main trade, it is called a bracket order. For instance, suppose you want to trade in the shares of a company ABC through a bracket order. As soon as you choose the option of ‘bracket order’ on your trading portal, the first order created would be the main order. It can be both a 'buy' or a 'sell' order (in case of short-selling). Let’s understand this through an example.  For instance, you placed a ‘buy’ order for 500 shares of ABC at ₹100 apiece. Now, as soon as you placed this order, two more orders would get created simultaneously, for which you would have to set price details. So, say you set the stop-loss order at ₹95 per share and a target order at ₹110 per share. Now, in case the stock breaches the ₹95 levels during the day, your stop-loss order would get triggered and your shares would be automatically sold, thereby limiting your losses to a predetermined level. But, in case the share price rises to hit ₹110 levels, the target order would get executed and profit would be booked. In case, the stock neither hits the stop-loss level nor the target, the position would get squared off automatically at the end of the trading session. Hence, in such a scenario, all 500 ABC shares would be sold at the market price at the end of the session that day. Hence, a bracket order is essentially automating the entire trading process for an intra-day trader. Just choose a stock, take a trading position and feed the prices in the system, and you are done. Things to know about bracket order It is important to know that the target order and stop-loss order become active in a bracket order only after the main order is executed. So, in case you had placed a main order which was a ‘limit’ order and not placed at the market price. If that order was not executed during the trading session, the other two orders would automatically get cancelled. Only the execution of the main order triggers the other two orders. Also, a bracket order is valid only for a single trading session and the positions can’t be rolled over to subsequent days. Advantages of bracket order The biggest advantage of a bracket order is that it helps traders in managing time by combining multiple orders in one transaction. Using this tool, day traders can easily take positions in multiple stocks without having to monitor the minute-by-minute movement of individual stocks. Also, bracket orders help traders stay disciplined about their trading strategy and not get impulsive during unpredictable and volatile market movements. Bracket orders put traders in control of their risk-reward ratio. Securing timely gains and limiting losses protect traders’ capital, thereby ensuring a successful trading journey for a longer duration of time. To sum up Smart traders can easily automate the trading process for themselves with the help of bracket orders. This one single trading technique holds the vast potential of not just securing gains for them, but also protecting them from the risk of capital erosion.

A broker is a person/organization who helps people purchases and sells goods and/or assets.

What is a broker and how do I choose a broker? In a vibrant market like India where there are hundreds of brokers to choose from, it is extremely  important for a trader to choose a broker wisely.  What is the role of a stockbroker? A stockbroker is an entity that services as the intermediary between the trader (client) and the stock exchange. The broker is registered and governed by SEBI and must obtain memberships of any exchange that it wants to offer trading services on to its clients. In exchange for a charging fee or brokerage, the broker provides its clients (traders) the ability to place trades on different exchanges. In India, most brokers have memberships with the National Stock Exchange of India (NSE) for share trading (Equity) and Futures and Options Trading (F&O). Brokers buy and sell shares and other financial products on behalf of their clients. When you trade through a broker you are essentially allowing the stockbroker to place a trade on your behalf. In return for placing trades on behalf of its clients, brokers usually charge a fee (brokerage) based on the percentage of trade value (turnover). Factors to keep in mind when choosing a broker:

Reputation and Security:

• Look into the broker’s reputation in the market. How long has it been offering reliable services?
• Ensure that the broker is SEBI registered.
• Verify that the broker has valid memberships with the exchanges that it offers.
• Research into the broker’s history and watch out for red flags such as prior complaints.

 

Online Trading Software:

Ensure that the broker’s [**online trading**](https://upstx.gustya.com/learning-center/online-trading/what-is-online-trading/) software is reliable and user-friendly. 
Is the broker going to help you in learning how to use the software? Sometimes an in-person or an online demo can make the software seem easily accessible. 
Check out user reviews of the software provided by the broker. How was the experience of fellow traders? 
Fast, reliable and easy-to-use are the primary characteristics that you should look for in an online trading software.
Available on multiple platforms—computers, mobile phones, tablets and web-based.

 

Backoffice and Safety of Funds:

Ask the stockbroker about backoffice tools available for clients. 
How long does it take to process withdrawals? 
Can you process withdrawals online?
What kind of backoffice software does the stockbroker provide?  
How tedious is the process to transfer funds? Does the stockbroker accept online transfers from your bank?
How long does it take for your transferred funds to be reflected in your account?
How do you know that your funds are safe with your stockbroker?
Your broker should be able to answer all your questions with no hesitation or confusion.

 

Brokerage Fees: Many traders make the mistake of choosing their broker purely based on the brokerage fees charged by the broker. **Do not make this mistake! ** For starters, if you are not looking to trade frequently then going with a broker that offers offline trading can be a good decision even if the brokerage fees are slightly higher. As a beginner you will definitely run into challenges with the online trading software so being able to call the stockbroker and having the broker place trades on your behalf is an important service. Once you are comfortable with trading regularly then you can choose a broker that is both affordable and meets your needs. If you are looking to trade daily or frequently then brokerage fees can quickly add up. Different brokers offer different types of plans. Brokerage fees can vary from broker to broker on the basis of the segments that you are wanting to trade in. Brokerage is usually described in terms of paise. For example: A broker might charge 1 paise brokerage. In layman’s terms, this means that you are paying Rs. 1 for every Rs. 1000 in trade value i.e. 0.01% of the trade value. Examples are the best Here’s an example that will help illustrate how this structure works in practice: If you execute a trade for Rs. 2 lakh, you will be paying Rs. 20 in brokerage (200,000 X 0.01%=20). Draw up a list of upto 25 brokers and start comparing their various brokerage/pricing schemes. Based on the turnover you are looking to do and the segments that you are looking to trade in, you will find yourself with a short list of a handful potential brokers. Aside from brokerage fees, many brokers also cleverly charge “turnover fees” apart from the required government charges (Securities and Transaction Tax, SEBI fees, etc.). Be very careful and ensure that the stockbroker is completely transparent with its fees: do not simply make your decision based on the “brokerage charged” because brokerage will not be the only fee charged!  

Customer Service: Last, but perhaps the **most important criteria **— how is the broker’s customer service? Will they be able and willing to support you when you are experiencing a technical glitch with your trading software or when you are in desperate need of help? Feel free to ask a lot of questions to your stockbroker! After all, this is the broker whom you plan to depend on in order to earn trading profits. You need to have the confidence in knowing that you can trust your broker. How long do you wait on hold before somebody picks up your call? How friendly and knowledgeable is their customer service? Answer all these questions truthfully before you make the choice. Choosing a broker is not easy but cannot be overlooked. Take out ample amount of time to research and find the right stockbroker to meet all your needs.

Brokerage is the amount that a broker charges for purchasing and selling goods and assets for others.

The Bombay Stock Exchange was started in 1875. It was called the "Native Share and Stock Brokers' Association" back then. It has about 6,000 companies and has developed India's capital markets.

Overview Buy Call Option, Sell Call Option A bull call spread is constructed by buying an in-the-money (ITM) call option, and selling another out-of-the-money (OTM) call option. Often the call with the lower strike price will be in-the-money while the Call with the higher strike price is out-of-the-money. Both calls must have the same underlying security and expiration month. The net effect of the strategy is to bring down the cost and breakeven on a Buy Call (Long Call Strategy). This strategy is exercised when investor is moderately bullish to bullish, because the investor will make a profit only when the stock price/index rises. If the stock price falls to the lower (bought) strike, the investor makes the maximum loss (cost of the trade) and if the stock price rises to the higher (sold) strike, the investor makes the maximum profit. Let us try and understand this with an example. **When to Use:**Investor is moderately bullish. **Risk:**Limited to any initial premium paid in establishing the position. Maximum loss occurs where the underlying falls to the level of the lower strike or below. **Reward:**Limited to the difference between the two strikes minus net premium cost. Maximum profit occurs where the underlying rises to the level of the higher strike or above. **Break-Even Point (BEP):**Strike Price of Purchased call + Net Debit Paid. Example Mr. XYZ buys buys a Nifty Call with a Strike Price Rs. 4100 at a premium of rs. 170.45 and he sells a Nifty Call option with a strike price Rs. 4400 at a premium of Rs. 35.40. The net debit here is Rs. 135.05 which is also his maximum loss. **Strategy:**Buy a call with a lower strike (ITM) + Sell a Call with a higher strike (OTM) The Bull Call Spread Strategy has brought the breakeven point down (if only the Rs. 4100 strike price Call was purchase the breakeven point would have been Rs. 4270.45), reduced the cost of the trade (if only the Rs. 4100 strike price Call was purchased the cost of the trade would have been Rs. 170.45), reduced the loss on the trade (if only the Rs. 4150 strike price Call was purchased the loss would have been Rs. 170.45 i.e. the premium of the Call purchased). However, the strategy also has limited gains and is therefore ideal when markets are moderately bullish.

Bullion is a common word for gold and silver, the jewels being 99.5% pure and in the form of bars or ingots. To create bullion, gold should be first extracted from the earth in the form of ore (a combination of gold and mineralised rock), after being discovered by mining companies. It is extracted with the use of chemicals or extreme heat. The resulting pure bullion is also called "parted bullion." Bullion that contains more than one type of metal is called “unparted bullion.” Bullion is a legal tender owned by Central banks held in reserves, they own 20% of the mined gold. It is also used by institutional investors to get an edge over the results of inflation on their portfolios. Gold is also held as reserves, a bullion that the bank utilises to repay international debts. Points to remember:

• Bullion is a legal tender owned by Central banks held in reserves.
• It is also used by institutional investors to get an edge over the results of inflation on their portfolios.

The Bureau of Indian Standards acts as hallmarking agency that certifies gold on the basis of Indian standards. Gold is tested and assessed at BIS centres and then certified as authentic metal to the Indian standard of fineness and purity. Points to remember:

• The BIS is National Standard Body of India that marks quality certification of gold and silver. It provides a certificate of assurance that a piece of jewellery is in accordance with the standards set by BIS.
• The certification has five components:
• BIS Standard mark
• Purity grade
• Mark of hallmarking centre
• Year of marketing
• Jewellers identification mark

A butterfly spread combines bull and bear spreads in order to form a neutral options strategy. Points to remember:

• A butterfly spread makes use of four options contracts that have the same expiry but three different strike prices.
• This creates a range of prices from which the profit can be earned.
• Puts and Calls can be used for a butterfly spread.
• They come with limited risk.

When a stock or security is acquired for long term regardless of market fluctuations, the act is known as ‘Buy and Hold’. Points to remember:

• Such investors are not concerned about the short term price of the stock.
• It is a passive investment strategy.

Buying forward is the purchase of commodities or securities at a specified price for delivery at a future date. When the price of the security or demand of a currency is expected to increase, buying forward helps an investor to gain benefit of future profits by buying at that point in time at a lesser price, and selling it when price increases. Points to remember:

• The opposite of buying forward is selling forward.
• If an investor assumes that there would be a potential drop in the price or demand of the security or currency, selling forward can be applied/implemented/executed by the investor. This will save the investor from incurring a loss as he/she would be selling it at that moment when price drops.

Example: For example, if a share is priced at Rs. 100 and it is expected to rise to Rs. 150, and if the investor buys this share at Rs. 100 and the prices jump to Rs. 160 in the future, he can sell it at Rs. 160 making a profit of Rs. 60.

An option that gives the buyer the right to, but not the obligation to, buy underlying futures contracts at the strike price before the expiry is called a Call Option. Points to remember:

• They are mainly used for speculation, tax management and profit generation.
• It gives the buyer the right to buy or call in an asset within a specified time.

The company issuing shares can cancel the offering for another form of financing, when an IPO process faces difficulties in getting investors to raise the required capital for it. Points to remember:

• A cancelled deal can indicate a failure of an IPO.

Example:

• Scotts Garments’ IPO withdrew its IPO in 2013 amid sluggish investor sentiments as the company received bids for only 27 per cent of the 1.05-crore shares on offer.

To an economist, capital refers to machinery, inventory and factories required to produce products. But, for an investor, capital can refer to their handheld cash and the financial assets which they have invested in market securities, home, or any other fixed assets. Raising capital or capital investment in projects is a commonly heard term. The type of capital that is involved defines how a capital good is maintained or is returned to its pre-production state. Points to remember

• There are multiple types of capitals - such as financial capital, natural capital, social capital, instructional capital, and human capital.
• As an investor you would be more interested in financial capital.

The profit or loss that results through the sale of certain assets is classified as a capital gain or loss. It encompasses stocks and other investments - like investment property. The capital loss or gain could be both long-term or short-term. Capital gain is of two types - realized and unrealized. The gain on an investment that was sold for some profit, is the realized capital gain. Unrealised capital gain refers to the gain on an investment that is not sold but is to be transacted later. Points to remember

• When the value of a capital asset, like an investment, decreases compared to its cost of acquisition, it is called capital loss. When the value increases, it is referred as capital gain.
• Equity funds and shares are long-term capital assets when they’re held for more than a year.

Example If an individual purchases the stock of XYZ Company at Rs.100 per share and the price rises to Rs. 120. Then, the capital gain for the investor is Rs. 20.

A rise in the market value of a mutual fund’s securities is known as the capital growth of the mutual fund. This is reflected in its net asset value (NAV) per share. This usually is a long-term objective for many mutual fund schemes. This growth is measured through the difference between the present market value of an investment or asset and the purchase price or the value of the investment or the asset at the time when it was acquired. Points to remember

• Companies which have stocks that tend to have the best capital growth usually don’t pay dividends.
• This type of growth is not taxed until and unless the investment or the asset is sold.
• The objectives of capital growth investments can be classified into high or moderate growth.

An option which has an established profit cap is known as a capped style option. These are also known as Protected Options. Points to remember:

• A capped style option protects the writer from losing any amount greater than the predetermined amount.
• Capped style options are easier to exercise.
• They do not need the type of movement a standard option needs in order to get decent profits.
• This tool is mostly popular among hedge funds and implemented by hedge fund managers.

Also known as the cost of carrying, it is the cost of storing a physical commodity over a definite period of time. These include insurance, storage costs and interest charges if any. Points to remember:

• These are incorporated in the forward contracts or the price of commodity futures.
• Carrying charges act as a deterrent to investors who want to invest in physical commodities.

Cash commodity is an actual commodity - like soybean, corn, silver which is bought or sold by a person, in contrast to digital commodities like shares. Points to remember:

• In futures trading, cash commodities are delivered for payments.
• The hedgers in the market are typically interested in buying the physical commodities or cash commodities or cash crops.

A cash contract is an agreement for immediate or future delivery of the commodity. Points to remember:

• A cash contract has a direct connection between the seller and the buyer.
• It can be drawn up for any amount for which both parties agree.
• Cash contracts also convey important information regarding the market conditions.

Cash Market is a public marketplace where transactions of financial instruments such as securities or commodities are immediately settled. Cash Market is the opposite of a futures market wherein the delivery (i.e. completion of a transaction) is made at a predetermined date in the future.

Market variables such as stock prices, market averages, commodity prices, trading volume, interest rates etc. are mathematically plotted on a graph in order to spot trends and also predict future values of these variables. Technical Analysts rely heavily on charting because they believe that all factors are factored into the stock price. Technical Analysis is based on the art of charting because analysts can then evaluate short-term trends, keep sight of the traded volume, volatility of a particular stock or the market as a whole and make decisions based on the values visible in these charting tools.

Cheapest to deliver is a method used to determine the cash debt instrument that will produce the maximum profit against a futures contract. Points to remember:

• It is important for a short position because there is often a disparity between the market price and the conversion factor.
• The cheapest to deliver is calculated using the following formula- CTD = Current Bond Price – Settlement Price x Conversion Factor

A Circuit Breaker or a collar is a measure that is set in order to stop panic selling after either a security or an index has fallen drastically by a particular amount. A circuit breaker is an instrument used to let investors and traders to understand if a particular fall in a security or a market index is a dire situation or not. It helps control the situation when markets are volatile and there is a tendency for investors to make decisions based on the emotion of panic.

A clearinghouse is an agency responsible for reporting the trading data, settling trading accounts, regulating delivery and clearing trades. Points to remember:

• A clearinghouse is a third party, in all the futures and options contracts.
• It adds stability and increases the efficiency of the financial markets.

Close-ended mutual funds scheme is when a mutual fund raises a certain amount of money, a.k.a. capital for a publicly traded company or IPO. Close-ended mutual funds specialise in a particular sector, location or type of industry. These types of mutual funds are not as diversified as the mutual funds in open-ended schemes. How to use Upstox MF platform for investing in close-ended mutual funds? In order to choose from those close-ended mutual funds out of the more than 2,000 mutual funds available on Upstox Mutual Funds platform, make sure you open an Upstox demat account. Visit the Upstox MF platform under the Support tab on Upstox homepage. Then, you can browse through all the funds. You can use the search bar and filter options to refine your search. As an investor, you can study all the close-ended scheme funds. Identify your financial aims and then click buy! To start investing using Upstox Mutual Funds platform, open a demat account  with Upstox. If you already have an account, you can just login with your Upstox User ID and Password and begin investing.

A co-manager is an underwriter in a stock offering, but not a part of the Lead Manager. They deal with a particular niche of investors in an IPO process and expand with more research on the company’s stocks. Points to remember:

• The co managers function in tandem with BRLM to cover different and broader bases.
• They also add additional research and distribution potentials to the offering process.

Overview A collar is similar to Covered Call but involves another leg—buying a Put to insure against the fall in the price of the stock. It is a Covered Call with a limited risk. So a Collar is buying a stock, insuring against the downside by buying a Put and then financing (partly) the Put by selling a Call. The put generally is ATM and the call is OTM having the same expiration month and must be equal in number of shares. This is a low risk strategy since the Put prevents downside risk. However, do not expect unlimited rewards since the Call prevents that. It is a strategy to be adopted when the investor is conservatively bullish. The following example should make Collar easier to understand. **When to use:**The collar is a good strategy to use if the investor is writing covers calls to earn premiums but wishes to protect himself from an unexpected sharp drop in the price of the underlying security. **Risk:**Limited **Reward:**Limited Breakeven: Purchase Price of Underlying—Call Premium + Put Premium Example

If the price of ABC Ltd. rises to Rs. 5100 after a month, then, 

 Mr. A will sell the stock at Rs. 5100 earning him a profit of Rs. 342 (Rs. 5100—Rs. 4758)
         Mr. A will get exercised on the Call sold and will have to pay Rs. 100. 
         The Put will expire worthless.
          Net premium received for the Collar is Rs. 12. 
         Adding (a +b+d)= Rs. 342—100—12= Rs. 254

This the maximum return on the Collar Strategy However, unlike a Covered Call, the downside risk here is also limited:

2. If the price of ABC Ltd. falls to Rs. 4400 after a month, then,     Mr. A loses Rs. 358 on the stock ABC Ltd.     The Call expires worthless     The Put can be exercised by Mr. A and he will earn Rs. 300     Net premium received for the Collar is Rs. 12     Adding (a+b+d)= —Rs. 358+ 300 +12= —Rs. 46

This is the maximum the investor can loose on the Collar Strategy. The Upside in this case is much more than the downside risk. Get to know more about online trading strategies in our knowledge base section.

Raw materials and bulk goods such as metals, livestock, oil, grains, cotton, cocoa, sugar etc which are used to manufacture consumer products that can be easily used by the average consumer, are defined as commodities. This term also includes financial products such as currency or stock and bond indexes.

Commodity Actuals are a physical commodity that highlight a futures contract or traded in the physical market. Points to remember:

• It is traded in a physical market or the futures market.
• It is a homogeneous commodity.

Commodity exchange is a legal body that regulates and imposes rules and procedures for the trading standardized commodity contracts and related investment products. It also refers to the physical centre where trading takes place. Modern commodity markets started with agricultural products being traded. It was done in the 19th century. Chicago was considered to be the main hub for commodity exchange. Modern commodity market involves trading in investment vehicles. Points to remember:

• They are often used by investors from the producers of goods and commodities.
• It is also used by investment speculators.

The commodity-product spread is the difference between the price of a raw material commodity and price of a finished product created from that commodity. A common commodity-product spread is the "crack spread". Trading on the fluctuations in the commodity-product spread is a sought-after trade in the futures Futures market. This can be very advantageous for firms that transform raw materials to goods and products. These firms can purchase futures and sell product futures, edging risk and aiding to circumference in the gross profits. Points to remember:

• Commodity spread trading is derived from hedging strategies.
• It is used lessen the risk involved in trading.
• Price for the commodity is secured with the assistance of futures.

A commodity trading advisor is a firm or an individual that advises others on buying and selling of the options and some foreign exchange contracts. Points to remember:

• The role of CTA is limited to providing advice related to trading in commodities.
• Being a commodity trading advisor requires registration with the National Futures Association.

It is the official legal record of a transaction that is carried out on a stock exchange through a stock broker. The trader gets the contract note at the end of the day if she/he has either purchased or sold shares through that particular broker.

A contract note is a bill of all your trades during each trading day and is generated daily. It is sent to you each evening to your registered email ID. To learn more about Trading Basics visit Upstox Knowledge Base.

In a marketplace, an order placed with a Stop Loss Order is called as Cover Order. In a cover order both the buy/sell orders are placed with a mandatory Stop Loss Order over a specified price range. A Stop Loss Order is non-cancellable.

Overview of a Covered Call Strategy Let’s consider that you are an investor. We will go over a Covered Call Strategy to see how you can profit. Imagine you own shares of a company. You feel the stock may rise in the long run but not much in the near term. You would still like to earn an income from the shares in the near term though.  A Covered Call Strategy can be used in this situation. In this case, the investor sell a call** **option on a stock he owns. This will net him a premium. The Call Option is sold usually in an OTM ( Out of The Money) call. The Call would not get exercised unless the stock price increases above the strike price. Until then, the investor in the stock (Call seller) can retain the Premium with him. This becomes his income from the stock. This strategy is usually adopted by a stock owner who is neutral to moderately bullish about the stock. Let's use an Example of a Cover Call Strategy An investor buys a stock or owns a stock which he feels is good for medium or long term but is neutral or bearish for the near term. At the same time, the investor does not mind exiting the stock at a certain price (target price). The investor can sell a Call Option at the strike price at which she/he would be fine exiting the stock (OTM strike). By selling the Call Option, the investor earns a Premium. Now, the position of the investor that of a Call Seller who owns the underlying stock. If the stock price stays at or below the strike price, the Call Buyer will not exercise the Call. The Premium will be retained by the investor. In case the stock price goes above the strike price, the Call buyer who has the right to buy the stock at the strike Price will exercise the Call option. The Call seller who has to sell the stock to the Call buyer, will sell the stock at the strike price. This was the price which the Call seller ( the investor) was anyway interested in exiting the stock and now exits at that price. The Benefits So, besides the strike price which was the target price for selling the stock, the Call seller (investor) also earns the Premium which becomes an additional gain for him. This strategy is called as a Covered Call strategy because the Call sold is backed by a stock owned by the Call Seller (investor). The income increases as the stock rises, but gets capped after the stock reaches the strike price. When to Use: This is often employed when an investor has a short-term neutral or moderately bullish view on the stocks she/he holds. She/he takes a short position on the call option to generate income from the option premium. Since the stock is purchased simultaneously with writing (selling) the Call, the strategy is commonly referred to as “buy-write.” **Risk:**If the stock price falls to zero, the investor loses the entire value of the Stock but retains the premium because the Call will not be exercised against him. Therefore, Maximum risk= Stock Price Paid—Call Premium. Upside capped at the Strike Price plus the Premium received. So, if the stock rises beyond the Strike price the investor gives up all the gains on the stock. **Reward:**Limited to (Call Strike Price—Stock Price paid) + Premium Received Breakeven: Stock Price paid—Premium received. To learn more about Options Trading Strategies visit Upstox Knowledge Base.

Overview This strategy is opposite to a Covered Call Strategy. A Covered Call is a neutral to bullish strategy, whereas a Covered Put is a neutral to Bearish strategy. As an investor, you follow this strategy when you the price of a stock/index is going to remain range bound or move down. Covered Put writing involves a short in a stock/index along with a short Put on the options on the stock/index. The Put that is sold is generally an OTM Put. The investor shorts a stock because he is bearish about it, but does not mind buying it back once the price reaches (falls to) a target price. This target price is the price at which the investor shorts the Put (Put strike price). Selling a Put means, buying the stock at the strike price if exercised (Strategy No. 2). If the stock falls below the Put strike, the investor will be exercised and will have to buy the stock at the strike price which is anyway his target price to repurchase the stock at the strike price—which is anyway hi target price to repurchase the stock. The investor makes a profit because he has shorted the stock and purchasing it at the strike price simply closes the short stock position at a profit. And the investor keeps the Premium on the Put sold. The investor is covered here because he shorted the stock in the first place. If the stock price does not change, the investor gets to keep the Premium. He can use this strategy as an income in a neutral market. **When to use:**If the investor is of the view that the markets are moderately bearish. **Risk:**Unlimited if the price of the stock rises substantially. **Reward:**Maximum is (Sale Price of the Stock—Strike Price) + Put Premium **Breakeven:**Sale Price of Stock + Put Premium Example Suppose ABC Ltd. is trading at Rs. 4500 in June. An investor, Mr. A, shorts Rs. 4300 Put by selling a July Put for Rs. 24 while shorting an ABC Ltd. stock. The net credit received by Mr. A is Rs. 4500 + Rs. 24 = Rs. 4524. Strategy: Short Stock+Short Put Option

Trading in international currencies is a global market where about $1.9 trillion is circulated in a day. It is one of the largest financial markets in the whole world. MNCs, banks, other financial institutions purchase and sell large volumes of currencies in order to cater to the international trade demands. Regular traders also invest and trade in the currency market so that they can capitalize on minor fluctuations in foreign exchange rates. Currency traders also predict and speculate so as to trade on anticipated fluctuations in the currency market.

A bank or company that holds the mutual funds’ assets in order to reduce risk is known as a custodian. Points to remember:

• A custodian holds the securities in either physical or electronic form.
• Though they hold securities and other assets, they play no role in portfolio management.

A debenture is a debt instrument which is an insecure instrument i.e. it is not backed by a physical assets or collateral. Debentures are secure only because of the issuer's creditworthiness and reputation. Usually, large corporations and governments are the ones who use debentures as a type of bond to raise capital.

A debt fund is a type of mutual fund wherein the invested amount is distributed across securities that are likely to yield you a fixed income. Points to Remember:

• Debt funds offer a minimum amount of risk and a roughly fixed amount of returns.
• They are also known as fixed income fund or credit fund.

Examples: Debt funds also include instruments such as: Gilt funds, Monthly Income Plans (MIPs), Short Term Plans (STP), Liquid Funds, Fixed Maturity Plans (FMPs) etc.

The day in the month that commodities on a futures contract have to be delivered is called the Delivery date. Every forward and futures contract contains a delivery date on which the corresponding commodity should be delivered to the holder of the contract provided he/she has the contract upto the date of maturity. Points to remember:

• A future contract is generally referred by its delivery month.
• The exchange market that deals with the futures contract should put forward the specified period during which the delivery can be made.
• For a few of the futures contract, the delivery period is the whole month, for some of it, it is a specific date.

Example: If a contract specifies the delivery date to be March 2019, then the futures contract will have to be delivered within the specified month of March.

It is a notice of a clearing member’s intention to deliver a stated quantity of a commodity in settlement of a short futures option. The holder in a futures contract with a short position writes a notice informing the clearing house of his/her intention and particular about delivering a commodity for settlement. The delivery notice is significant in the cases of both short and long positions in a futures contract. Points to remember:

• The notice is a clear written contract.
• It describes the specifics about the commodities, and the delivery.

Delivery points are the locations where the commodities will be delivered to the buyer. It can be a warehouse where commodities are stored or an exchange facilitated delivery point. Points to remember:

• The location you choose for the delivery will affect the net delivery cost.
• The difference in the price due to change of delivery points occur as a result of transporting the commodities from source to delivery point.

Delivery is the final step of finalization of a purchase or sale of a financial investment instrument. Just like the purchase and sale of any other product in a marketplace, delivery happens when the transaction is complete and you bring the purchased goods home or get them delivered. Delivery trading is more common when purchasing or selling a stock, commodity or when trading in currency markets.

What is Delivery Trading?   Delivery trading in the stock market refers to buying shares and holding them in your Demat account for more than one day. You can keep these shares for days, years, or even decades—depending on your financial goals. Unlike intraday trading, where positions must be squared off the same day, delivery trading allows you to hold stocks as long as you want. This makes it a preferred approach for investors focused on long-term wealth creation. It also differs from swing trading, where stocks are typically held for a few weeks or months to capture short to medium-term price movements. Delivery traders, on the other hand, usually invest with a longer horizon in mind.   Example of Delivery Trading To help you understand a bit better, here’s an example.  Say you buy 50 shares of a company today at ₹200 each on Upstox. Now, instead of selling these stocks today, you hold them in your Demat account. Now here are the possibilities:

If the price goes up to ₹300 after a year, you can sell and make a profit.
During this time, you will continue to receive **dividends, bonus shares, or rights issues**. This is because you’re a shareholder of that company’s stock. 

  **What are the advantages of Delivery Trading **

**Hold for the long term**: With Delivery Trading, you can invest in strong companies and build your wealth
**Safer than intraday**: Lower risk compared to intraday trading. This is because you aren’t exiting the trade on the same day.
**Get shareholder benefits**: Because of the long-term stock holding, you’ll be eligible for dividends, bonus shares, and rights issues of the stock.
**No daily tracking required**:  Delivery Trading is beneficial if you don’t want to monitor markets minute-by-minute.

  **What are the disadvantages of Delivery Trading **

**Funds get blocked**: Since you pay the full amount upfront while buying shares, funds will be blocked till the date you decide to sell the stocks.
**Slower returns**: Unlike intraday, profits aren’t instant in delivery trading. So, you need patience for Delivery Trading.

  How to Do Delivery Trading on Upstox?

Log in to your Upstox account
Select the company whose stocks you want to buy.
You can pick from our list of Today’s Gainers,  52-Week High and more
Pick the stock, analyse its details and buy 
Choose regular stock and pick “Delivery” instead of “Intraday.”
Enter quantity and place order.
The shares get added to your Demat account. Now hold them as long as you like.

  What are the differences between Delivery and Intraday Trading Feature Delivery Trading Intraday Trading Holding Period More than a day (your choice) Same day only Ownership Shares stay in your Demat No ownership, only trade Benefits Dividends, bonuses, rights, splits None Risk Level Lower Higher Funds Full payment required Margin allowed Time Required Low (check occasionally) High (constant monitoring)   So, which one’s for you?

If you want to build long-term wealth → Delivery Trading
If you’re experienced, have time, and can track charts daily → Intraday 

On Upstox, you can do both easily from one account.  

Demat is short for "dematerialization" (DEMAT). It is the move from physical certificates to an electronic version of keeping a record of all the shares an investor owns. With the advent of the digital age, actual stock certificates are ceasing to be in existence and will not be circulated anymore. Instead, electronic records of the stock certificates will be kept digitally.

Shares and securities are held in a special account called "Demat" which basically means that these shares and securities are held electronically in a "dematerialized" account. This account is a replacement of the investors having to hold share certificates in physical format i.e. printed copies. Investors and traders can open demat account when registering with the investment broker like Upstox.

A Depository Participant is an agent or representative of a depository. A depository can be literally translated as a place where valuables are stored for safety purposes. However, in the financial world, a depository can also refer to an institution that holds and also enables owners to exchange their securities and shares. When investing or trading on the stock exchange, your broker becomes the Depository Participant.

A derivative is not a stand-alone financial product. Its value is dependent or it derives its value from another variable asset.

Derivatives market is the financial market for derivatives which are a group of products including futures and options whose value is derived from and/or is dependent on the value of a different underlying asset such as commodities, currency, securities etc. whose value is independent and only dependent on market forces.

Derivatives are those instruments that are dependent on another security for its value. There are several underlying assets based on which traders can purchase and sell in the derivatives market. For example, the underlying assets include stocks, bonds, interest rates, market indexes, currencies and commodities.

When a specific category is offered shares at a price different than the other categories, the act is called as differential pricing. According to the DIP (Disclosure and Investor Protection) guidelines, if the firm allotment category has a price greater than the net offer to the public, only then the differential pricing policy is applicable. Points to remember:

• A company can issue shares at differential pricing to only two categories, namely the retail investors and the employees.
• For retail individual investors, a maximum of 10% discount on the price offered to other categories is allowed.
• For employees, a maximum of 10% discount on the floor price can be offered.

When securities are offered direct to the public, without any aid from an investment banking firm, the company is said to be doing a Direct Public Offering (DPO). The companies must have a complete set of financial statements and a disclosure statement in order to complete DPO. Points to remember:

• DPO offers the company a chance to build the capital money from its own community and not only the wealthy investors.
• As DPO have an exemption from the federal registration requirements, they are not required to be registered with Securities and Exchange Commission (SEC).

Example: Spotify had opted for the DPO route in 2017, so public investors could have access to its shares.

Discount brokers are those brokerage firms who charge a reduced fee/commission for helping investors purchase and sell on the stock markets. Such discount brokers like Upstox utilize the best of technology to provide a sophisticated trading experience. Additionally, unlike traditional brokers wherein they get extra commission for recommending certain stocks, discount brokers have no hidden agenda in helping you choose the right investment option for you. They don't provide any investment advice or tips.

The earnings from a mutual fund are available in different ways. One of them is a dividend plan. In a dividend plan, the investor receives a fixed dividend (or payout from his holdings) from time to time. The dividend is not reinvested back into his holdings, unlike in a growth fund. Points to remember:

• The investor receives dividends in his account, which are not taxed at the receiving end.
• But a Dividend Distribution Tax is levied on the mutual fund schemes before the dividends are paid out to the investors.
• A dividend plan allows investors to engage in ‘dividend stripping’ - which involves exiting the fund at a loss (on paper) after the dividend has been received, since a dividend is deducted from the Net Asset Value (NAV) of a fund.

Dividend stripping is when the investment is made with the thought of exiting the fund as soon as the dividend is received. Dividend stripping is usually a strategy used by investors for reducing their tax burden. The investor invests in securities just before the record date and exits immediately after the dividend is received. The dividend received is tax free. Points to remember:

• Dividend stripping is usually a strategy used in mutual funds.
• Many-a-times, the investors might incur loss due to such sale-off of shares. In such cases, they book for a capital loss which is then used for claiming tax breaks.

The DEMAT Account Number is a 16-digit number. Eg: 12081800 00123456. The first 8-digits of this number are the Depository Participant (DP) ID and the last 8-digits are the Client ID. You'll also get your DP ID when your account is opened with Upstox.

As the name suggests, it is the draft of the offer document for an IPO (Initial Public Offering). It is the first ever document submitted by the company to SEBI (Securities and Exchange Board of India) for approval. Points to remember:

• This document are to be filed with SEBI (Securities and Exchange Board of India) at least before 21 days of filing it with ROC/SE.
• SEBI takes approximately 30 days to process draft offer document.
• The changes specified by SEBI in the draft should be done by the issuer before filing it with ROC/SE.
• The draft document is available for review by the public for 21 days prior to filing it with SEBI on the website of SEBI.

Equilibrium is the state when the supply and demand of the market balance one another. As a result, prices remain stable. The equilibrium price is the market price where the number of goods demanded is equal to the number of goods supplied. Equilibrium is the point where the curves of supply and demand converge in the market. It is determined by checking the price at which the curves of demand and supply meet. Points to remember:

• It can fluctuate when the production cost is low or undergoes technological advancements, which subsequently increase the supply of products at any level of price, lowering the equilibrium.
• The consumers as well as the producers are satisfied, thereby, keeping the services and the price of the product stable.

When speaking of the financial markets, equity is a stock or any other security that is owned by a person. Equity is the share of the stakeholder in a company's profits and debts.

The options on shares which belong to an individual’s common stock are said to be equity options. These options are known to be the most common type of equity derivative. Points to remember:

• These options provide rights, but not the obligation to purchase or sell stocks, at a particularly set price within a specified span of time.
• The option expires after reaching maturity.

Equity Trading is the purchasing and selling of company stock shares. In publicly traded companies or IPOs, shares are bought and sold through stock exchanges such as the BSE or NSE in India or through NYSE or LSE internationally.

Whenever an investor makes an exit from a mutual fund within a duration as set by the mutual fund scheme, they may need to pay a charge known as the exit load. Most mutual fund schemes charge a fee while entering or leaving a scheme known as load. The one levied while leaving is called exit load. This fee is collected with the aim of discouraging investors from leaving a scheme. In other words, it is done to avoid withdrawals. Points to remember:

• The exit is levied to discourage investors from changing schemes often.
• It is calculated as a percentage of the Net Asset Value (NAV) when the investor is selling off the schemes.
• Exit load is not applicable in case of merger of funds.

Example: Suppose, you are selling 500 units of an equity scheme that you had purchased four months ago. The scheme could charge you 1 percent for an exit load if you redeem the units you hold before one year. Let us assume the NAV is Rs. 100. You will get Rs. 99 per unit [Rs 100 – Rs 1 (1 per cent of 100)] on redemption. The total amount that you’ll get will be Rs. 49,500 (Rs 99 X 500 units). That means you have paid an exit load of Rs. 500 (Rs 1 per unit).

The external factors that affect the share performance of the company, (which need to be mentioned in the offer document when going public), are called external risk factors. These factors are generally not under the control of the company. Points to remember:

• External risk factors include market risks, changes in economic macro-variables and government regulation risks.
• The external risk factors have an impact on the initial public offering valuation.

It is the copy of a prospectus with the documents which is submitted to the Registrar of Companies (ROC). Points to remember:

• Filing is a mandatory step which needs to be completed by every company before going public.
• All the documents needed as per the state business laws needs to be submitted during the filing process.

A part of the total money the company raises in the market is fixed for the promoters to avoid dilution of their stakes. This is termed as Firm Allotment. Points to remember:

• According to DIP guidelines, only a certain percentage of shares can be kept under ‘Firm Allotment.’
• These shares are offered at a different price than the net price offered to the public, normally higher than the latter one!

The process of buying the IPO at the offering price and selling it off as soon as trading starts in the open market is termed as flipping. It is a way of earning quick profit! Points to remember:

• It is not an easy process and discouraged by brokers as companies need long-term investors.
• No laws prohibit flipping but you may be blacklisted by your broker for future offerings!

If an already listed company issues fresh securities to the public or makes an offer for sale, then it is known as Follow on Public Offering (FPO). In such a scenario, an offer for sale is allowed only if the company satisfies the continuous listing obligations. Points to remember:

• An FPO is a popular method to raise additional capital for the company from the market.
• Shareholders usually react negatively to FPOs because it leads to dilution of existing shares.
• FPOs prove to be beneficial for investment banks as they are able to charge a trading fee from the company getting listed.

The fixed price at which a specified amount of a commodity is to be delivered on a fixed date in the future. The price is fixed by the long buyer and the short seller who have agreed to pay at a date specified in the future. At the beginning of a forward contract, the forward price makes the value of the contract at that time, zero.

Forward Market Commission is the Regulatory Authority in India for commodity futures trading. FMC is headquartered in Mumbai. Just like SEBI regulates Stock market, FMC regulates commodities futures market. They provide advices to Central Government in matters relating to the recognition or withdrawal of recognition from any association. Now, FMC and SEBI fall under the same regulatory body. Points to remember:

• They also provide advices to central government in matters relating to problem emanating out of the administration of Forward Contracts (Regulation) Act 1952.
• They have the right to exercise the powers assigned to them under the act to take actions whenever necessary. They also provide suggestions to improve the functioning of forward markets.

A CBOT full membership is the membership of Chicago Board of Trading that provides the individuals with the right to trade in all the futures and options listed under it. Points to remember:

• A full membership is one of the five levels of membership associated with CBOT.
• Each level of membership has a colour cadge associated with it. A full membership comes with a yellow badge.
• You need to apply for this membership and if approved, you get 30 days to acquire it.

Overview Fundamental analysis is based on the idea that the market cannot be depended upon to accurately price a stock. This type of approach towards trading looks at external factors such as earnings reports, economic news, and explores how these factors will impact the inherent price of the stock in the future. Technical analysis is associated more with short term traders who want to rely on a pattern to decide when to enter and exit the market. Fundamental analysis is appealing to the traders who are interested in holding on to their stocks on a long term basis. Value Investing Many investors who rely on fundamental analysis believe in **“value investing” **i.e. they look for stocks that are priced at a discount but their intrinsic value is calculated to be higher than the market price. Fundamental analysts would therefore place long term trades on such stocks. Determining the intrinsic value of a stock is a fundamental analyst’s chief mission. A fundamental analyst looks at a company’s profile, latest earnings reports, what types of news releases are expected from the company and then analyses whether the market has correctly priced all the information into the stock. Successful fundamental analysts do not shy away from financial statements. Analysts look at a company’s revenue, expenses, assets, liabilities and all other financial aspects of a company. Taking all this into account, the fundamental analyst attempts to understand what the true value of the stock should be. One can get started with Fundamental Analysis by researching how stock prices are determined by a market. Understanding how to interpret earning reports, financial statements, balance sheets, cash flow statements, etc. can help you learn how stock prices move in reaction to these factors. That way, the next time you feel that a stock is under-priced, then you can invest in that stock more confidently.

Futexagri is an equal- weighted index of commodities traded on NCDEX based in the price of near month future contract. Weighted index is found out by assigning weights to the prices of near month futures contract. National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. Futexagri is traded on NCDEX.

Futures are contracts for assets such as commodities or shares bought at predetermined prices. However, the final delivery and actual payment for futures contracts is done later. That's why in finance such contracts are termed as "futures."

A person or firm involved in accepting and handling the buying and selling of futures contracts is known as futures commission merchant. Points to remember:

• A futures commission merchant is responsible for collecting the margin money from the customers.
• Every futures commission merchant should be registered with CFTC (Commodity Trading Futures Commission).

A futures contract is a legal agreement based on future exchanges, that is, buying and selling of a financial instrument in both equity and commodity at a fixed price in the future at a specified time. Points to remember:

• There are two categories of people dealing with Futures contracts: Hedgers and Speculators.
• Futures contracts can either call for physical deliveries of the commodity or are settled with cash.
• A Futures contract is usually chosen to avoid extreme changes in price levels in the market whilst gaining risk free returns.

Example: Let us assume that you are interested in purchasing stock X which is priced at Rs. 100 today. You enter a futures contract to buy Stock X at a later date that is two days from now. Thus, you enter into a promissory agreement with the exchange to pay Rs. 100 two days from now. Now, even if the market price of Stock X increases to Rs. 150 or Rs. 200 on the day of the payment--you still pay the previously promised Rs. 100--irrespective of the market price of Stock X at that moment.

A Futures exchange refers to the market place where the exchange of futures contracts, futures and options, and other such future trading takes place. Points to remember:

• The exchange allows buyers and sellers deal with equities and commodities with price certainty at a specific time in the future.
• Contracts in the exchange have standardized sizes, pricing information, bids, termination and expiration dates.

Examples:

• Bombay Stock Exchange (BSE).
• Indian Energy Exchange (IEX).
• Metropolitan Stock Exchange (MSEI) (Formerly known as MCX-SX).
• Multi Commodity Exchange (MCX).
• National Commodity and Derivatives Exchange (NCDEX).
• National Spot Exchange.
• National Stock Exchange of India (NSE).

People can trade in the futures exchange or futures market where people can trade futures contracts which are contracts to purchase a certain volume of a particular commodity or securities or other financial instruments at a particular price that was predetermined. The delivery of this particular futures contract takes place at a predetermined time in the future.

Gamma is the rate of change of delta of an option, in response to changes in the prices of an underlying asset. It gives us a significant evaluation of convexity of a future contract’s value, with respect to the underlying assets. Points to remember:

• A positive gamma depicts an affirmative convexity of trading position.
• In order to preserve a hedge over a wide price range, a delta hedge plan involves reducing gamma. However, a major outcome of reducing it is that, alpha too, is reduced.

Example: Let us assume that a call option on an underlying stock has a delta of 0.4. If the value of that stock goes up by $1, the option’s value increases by $0.40, inevitably changing its delta to 0.53. The 0.13 difference in deltas is measured as an estimated gamma value.

Gilt funds are a kind of security with minimal risk involved and are issued by India’s central government. Gilt funds originated from the British investment model. In most cases, they are debt securities issued by the government, but sometimes they might be issued by companies. Points to remember:

• Gilt funds came into being with the objective to minimise risk.
• They are considered by many to be the ideal investment option for the newbies, since they are not only safe but also offer better returns than a typical savings account.
• The returns from such debt funds rise whenever equity funds decline.

Example: The Henderson U.K. Gilt Fund is an investment managing company which invests in U.K. government gilt securities.

GIM stands for Government Instrument Market. The CBOT, or the Chicago Board of Trade, provides for a membership to merchants. Points to remember:

• The GIM membership provides merchants with the opportunity to trade amongst all future contracts that have been listed in the GIM category.

Global funds are a kind of mutual fund which invest in stocks throughout the world. Being a global fund, it filters the most apt and best investment plans from a larger pool of securities offered worldwide. Points to remember:

• A global fund helps investors create a diverse portfolio.
• The return accrued is generally high.
• Global funds involve risk and hence are considered suitable for investors with knowledge and experience.

GLOBEX® is a global after-hours electronic trading system. It provides a platform for derivatives, futures and commodity contracts. Points to remember:

• Globex operates at all times and is not constrained by any time zones.
• It has declined exchanges like the CBOT and focuses on different vehicles to match and execute trades.

When a privately held company offers shares to the public for the first time through Initial Public Offering (IPO), the act of becoming an IPO is called ‘going public.' Points to remember:

• Going Public allows even small companies to operate without the help of any credit.
• It is a way of generating money without having to repay the investors, but of course, this is not how it should be perceived as by the owners of the company.
• Going public requires companies to meet certain conditions depending on their country. For example, in India - a company must be generating a profit for at least 3 years before going public.

Technically known as an over-allotment option, a green shoe is a part of underwriting agreement, through which the issuer can distribute additional shares. The additional amount is typically 15%. The Green Shoe Manufacturing Company was the first one to use this concept, and this is where the name comes from! Points to remember:

• A Green Shoe option can be used only if the public demand for shares increases more than expected.
• It is the only way that is permitted by SEBI to stabilize the prices after the offering price is decided, by the underwriter.

Gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country. GDP is applicable to citizens or foreign-owned companies. If they are in India, the government includes it as a part of their production to their GDP. The calculation of GDP is down as follows: Personal Consumption Expenditures plus Business Investment plus Government Spending plus (Exports minus Imports). Now that you know what the components are, it's easy to calculate a country's gross domestic product using this standard formula: C + I + G + (X-M). Points to remember:

• There are many different ways to measure a country's GDP:
• Nominal GDP: This measures the increase in prices.
• Real GDP: This compares the economic output of base year with the current year. It also accounts for the consequences on inflation.

Gross national product (GNP) is a reckoned figure of total value of all the final products and services transpired over a given period, by the means of production owned by a country's residents and businesses, notwithstanding location of production. GNP generally is calculated to measure the total value of the output produced by a country’s resident in monetary terms. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services. Points to remember:

• Though GDP is popularly followed to measure a country’s economic activity, GNP is also used because; the difference between the GDP and GNP will show the extent of a country’s participation in international trade.
• The real GNP takes nominal GNP measured in current year prices and sets off for any changes in price level for goods and services included in the calculation of GNP.
• Calculating both GNP and GDP can show varying in terms of total output.

A growth plan is a variant of mutual fund schemes. As the name suggests, it is a kind of mutual fund with the objective of long term capital growth. The growth option helps in increasing the Net Asset Value of the fund and the investor is able to receive a high capital gain. Generally, firms that offer such plans do not charge any commission at the reinvestment stage. So dividend plans offer an investor to reinvest their money for compounding, without incurring any brokerage fee. Points to remember:

• The investor does not receive any dividends.
• This is because when opting for growth plan, you give the right to the company to reinvest all the dividends you receive.
• Dividend plans can stabilize stock prices as they create a push towards long term investment.

Example: HDFC TOP 200 FUND - Growth, Sundaram Rural India Fund - Growth are some examples of funds which offer Growth plans.

When an underwriter buys his/her commitment at the earliest stage, then it is known as hard underwriting. Points to remember:

• If the shares are not bought by investors then the underwriter is expected to subscribe to the funds and bring in the amount.
• The lead underwriter promises a fixed amount to the issuer, irrespective of whether he can sell it to the investors or not.

A hedge fund is a kind of fund that pools the capital of investors and then invests them in a variety of schemes. Retail investors cannot invest in hedge funds. The goal is to generate higher returns which can be achieved due to the investment of high amount of pooled capital in different securities. Hedge funds are much more flexible than mutual funds or any other investment funds. Apart from this, there are fewer regulations, which is why they are not available to the general public. Points to remember:

• Hedge funds are accessible only to accredited investors.
• Their aim is to achieve positive returns irrespective of the fact whether the market is rising or falling.
• Unlike mutual funds, whose investment is limited to stocks and bonds, hedge funds can invest anywhere.

Example: Ambit Corporate Finance Pvt. Ltd. is one of the major hedge funds in India.

A Holding Company is the company that has the voting control over another company, because it owns the necessary amount of shares of that particular company. Points to remember:

• A holding company is the actual owner of the organisation.
• This company can take the final call on all decisions.

The time for which an investor holds on to a security is known as the holding period. The period during which an investment is attributable to a particular investor is the holding period. In the long term it is the time period between the purchase and sale of a security. Points to remember:

• A holding period helps to determine the taxing procedure of a capital gain or loss.
• A long term holding period is a period greater than one year.

Example: If you sell a stock of RELIANCE is sold after a year then the time for which it is held in your demat account is known as holding period.

An investor might have a vast portfolio--the contents of which are known as holdings. All securities are typically ranked according to the ratio of the portfolio they occupy. This arrangement and information makes it easier for the investors to identify the driving point of the fund. Points to remember:

• The larger the holding, greater is its impact on the portfolio.
• The more the number and type of holdings, greater the diversity of the portfolio.

Examples: Scrips and Mutual Funds in your demat account are called as holdings.

Indian Council for Agricultural Research, is an autonomous body that coordinates agricultural education and research in India. It is the hub of agricultural research institutes in the world, presided over by the Union Minister of Agriculture. Some of the institutions in the network include:

• The Central Agroforestry Research Institute (Jhansi)
• Central Institute of Fisheries Technology (Cochin)
• Central Institute of Freshwater Aquaculture (Bhubaneswar) and
• Central Institute of Research on Cotton Technology (Mumbai)

Points to remember:

• ICAR is the one of the world’s largest networks consisting of various agricultural research and educational institutes.
• It consists of 64 different institutions and 4 deemed universities.
• ICAR is headquartered in New Delhi.

Indian Farmers Fertiliser Cooperative Limited is a large scale fertiliser cooperative federation based in India. The IFFCO is responsible for the production and sale of tonnes of fertiliser material, every year. The IFFCO has 40,000 member cooperatives and is registered as a Multistate Cooperative Society. Its subsidiary companies include IFFCO Tokio General Insurance, a joint venture between IFFCO, Tokio Marine, and Nichido Fire Group. Points to remember:

• IFFCO is an Indian fertiliser cooperative federation that produces and sells fertilizers.
• It has an overall capacity utilization of 53 per cent for phosphate fertiliser and 98 percent for nitrogenous fertiliser.
• IFFCO has joint ventures with various companies including Indian Potash limited and the Oman-India fertiliser company.

The performance of the stock market can be estimated by taking into account the performance of stocks, bonds and other financial instruments contained within the marketplace. These statistical tools that are employed to measure the state of the economy are called averages and indices. With the help of these market indices and averages, the change in a particular basket of goods can be measured over a specific period of time. An average is the common mathematical average - the sum of values of all securities divided by number of securities. For calculating the index, a base value and date is chosen and the change in basket of securities is calculated. Points to remember:

• There are various methods to calculate averages and indices.

Example: The Sensex is an index of the top 30 companies on the Bombay Stock Exchange.

When a private company stock is offered to the public for the first time, the offer is said to be an Initial Public offering (IPO). Initial Public Offers are usually issued by those companies seeking to raise capital or wanting to get access to funds in order to expand their operations. When a company’s stock is listed in the stock exchange and available for the public to buy and sell stocks, at that point in time that company’s stock is considered to be available in the secondary market. Points to remember:

• The issuer in IPO obtains the assistance of an underwriting firm, that will help in the determination of what type of security is to be issued.
• The firm also helps find out the offering price and the amount of shares which are to be issued or the company is trying to bring in to the market.
• IPO permits a company to attract more talent as it offers stock options.

Interval funds combine the features of close-ended and open-ended funds.  The interval funds can only be bought or sold during a particular pre-determined window at periodic intervals. ** **Capital market regulator the Securities and Exchange Board of India (SEBI) categorises different types of mutual fund schemes based on the investment tenure and asset types they invest, among others. In the arena of mutual funds there are both open-ended and close-ended funds. There is one more category of mutual funds, through which the mutual fund houses offer the combined features.  These funds are called interval funds.  These mutual funds derive the name due to a typical feature associated with their buying or selling. What makes the interval funds different is that these funds can only be bought or sold during a particular pre-determined window at periodic intervals.  Let’s delve into the details if you are looking for a new category of mutual funds.  What are Interval Funds?** ** As the name suggests, an interval fund is a type of mutual fund whose units can be bought or sold only during a particular period. The window for buyback of these mutual funds units based on net asset value (NAV) is predetermined by the mutual fund house. The investors can invest interval funds at any time, but the redemption is allowed only during the specified transaction period (STP).  Interval funds are mostly debt oriented schemes but they can invest in both debt and equity instruments.    One of the advantages of interval funds is that the fund manager gets the opportunity and time to put in place a good investment strategy without getting worried about redemption requests and liquidity. This helps the fund house to determine the interval for unit redemption.   How an interval fund works The investors are allowed to buy or sell their units at the prevailing NAV only during the specified transaction period (STP), which opens in periodic intervals. Asset management companies (AMCs) decide the interval when investors can redeem their units. Key Features of Interval Mutual Funds

Thanks to their special design, interval funds could be a suitable short-term investment option.
Interval funds offer higher liquidity as buying and selling units are allowed only during a specific window of time periodically.
Interval funds normally suit investors with lower risk appetites.
Interval funds generally invest in debt securities, minimising risks for investors.
Even during any emergency, investors cannot redeem the units of their funds even if they are willing to pay the exit load.
Investors need to be careful about the expense ratio as interval funds normally charge higher fees than other mutual funds.
History shows that interval funds have given investors low to moderate returns of up to 8% over a period of 5 years.
Taxation depends on the amount of investment in debt or equity.

Benefits of Interval Mutual Funds** ** Interval funds allow retail investors to gain exposure to unconventional assets. Asset management companies running such funds tend to invest in unconventional assets like commercial property, forestry tracts and business loans. Investors can put their money in institutional-grade alternative investments with low minimum investments. AMCs make periodic offers to investors to repurchase shares at prevailing NAV. Who may find interval funds suitable? As each mutual fund is designed with a specific focus to meet the particular investment needs of the investor, interval funds also focus on this aspect. These funds invest in commercial property, forestry tracts, business loans and other illiquid assets, which are suitable for investors who want to invest in unconventional assets. These funds are also suitable for short-term investors with low to moderate risk profiles. Conclusion Many investors compare interval funds with closed-ended funds, but the latter does not allow the investor to withdraw capital for a long period of time. Interval funds, however, allow investors to buy and sell during predefined windows. Interval funds also share features with a fixed maturity plan, so investors should keep in mind this positive aspect while investing.

Intraday Trading is the system of trading where one has to square-off the trade within the same day i.e. a trader has to buy and sell or sell and buy the same day prior to market close. The transaction has to be completed and settled before market close of that particular day. Intraday Trading is also known as Day Trading.

• Investing is traditionally related to buying stocks or other financial instruments that are expected to fetch returns over a long period of time. They are often held onto like family silver for several years.
• For this reason, it is important that investors select stocks or bonds of companies which are expected to grow in the long term. Thus, investing involves intense fundamental research about the potential investment target, be it a stock or a long-term bond.
• The aim of an investor is to create a balanced portfolio of different stocks and bonds that give returns through increase in value as well as dividends or interest income. This enables him or her to attain financial security.
• As a result, investors do not sell their holdings regularly. It is only in case of an emergency or when the stock has met its long-term targets.

Investing is different from trading. To know more, click here.

International Securities Identification Numbering (ISIN) system, uniquely identifies a security. The ISIN is an international standard formed by the International Organization for Standardization (ISO), for the purpose of numbering specific securities. The ISIN number is administered by the corresponding National Numbering Agency present in the respective country. A typical ISIN code consists of 12 alphanumeric characters. The first two are assigned by the country of origin and by the head office of the issuing company respectively. The 9 characters between the first and the last, are utilized for unique identification of the security. The last digit acts as a check digit to prevent errors and ensure authenticity of the code.   Points to remember:

• The ISIN code is a 12 digit (alphanumeric) numbering system for unique representation of securities such as stocks and bonds.
• It is issued by the National Numbering Agency, present in each respective country.
• It is structured in a way that it includes the country code where the headquarters of the issuing company are present, the specific security identification number, and a check digit.

Example Apple, Inc.: ISIN US0378331005. Here, the country code is US for the United States, the identification number CUSIP is 037833100 and the check digit is 5. Reliance : INE002A01018

The price at which new security is issued and is to be distributed among a set of people prior to the new issue trading is called the Issue Price. Points to remember:

• It is often referred as offering price.

The entity that issues or distributes securities is known as the Issuer. The issuer could be anyone, a company, government or municipality. The issuers are legally responsible for all kinds of obligations of the issue and also for reporting the condition of the financials, material developments and any other kind of operational activities according to the requirements of the regulations of their jurisdiction. Points to remember:

• The issuer will work according to the availability of securities such as preferred and common stocks, notes, debentures, bonds, derivatives and bills.
• The writers of options are usually known to be the issuers or options as they also sell the securities on a market.
• SEBI regulates all the companies that issue shares and debts that are listed on the market.

An application can be filled in two ways: as a single entity or joint parties. The applications registered under the joint names consists of names--more than one. The payments made under the joint applications are made in favor of the first applicant. Points to remember:

• At times an individual is not applicable to qualify for availing the credit on their own merits.
• In this case, a person might prefer filling in as a joint applicant which might increase the chances of the application being accepted.

A Lead Underwriter is in charge of organizing the distribution of member participation shares, syndicate and making stabilized transactions. The name of the lead underwriter is mentioned on the left side of the prospectus cover. The person majorly works with various other investment banks in order to establish an underwriter syndicate, and will also create the force for initial sales of the shares. These shares are further sold to the retail clients and institutions. Points to remember:

• This can bring a bigger payday if the market reflects higher demand regarding the shares.
• Generally, the issuer of stocks will permit the lead underwriter to make an over-allotment of shares only if the demand is high. It can also bring more benefits in terms of money to the underwriting firm.
• The lead underwriter also has access to financials of the company and conditions of the current market, to achieve the initial number and value of the shares which are to be sold.

A limit order is an order where the trader defines the price at which the order should be executed. The opposite of a limit order is a market order.

Listing majorly indicates the shares of a company that is on the stock list. It should be a company that has officially been traded on a stock exchange. On a general basis, in many countries, the issuing company applies for a listing, but in some other countries, a company can be listed by an exchange, because the stock has already been traded through informal channels. Points to remember:

• Every stock defines its own rules and listing requirements.
• Due to the process being time-consuming and costly, the listing is not considered much favourable for SMEs (Small & Medium Enterprises).

The date when a newly recorded security is up for sale is called the effective sale. In other words, it the date on which the shares will be traded for the first time on an exchange. Points to remember:

• After registering with SEC, a company can get their effective date within the next 30 days. This is the time taken by SEC for reviewing the Form S-1 submitted by the company.
• A day before the effective date, the lead underwriter and company decide the number of shares to be sold and the prices at which it will be sold.

In case of IPOs, the lock-in period refers to the duration wherein those with prior information about the impending IPO or the offer document are not allowed to bid or subscribe or take advantage of their position with the organization. This freeze on shares is a way so that a certain number of shares still remain under the ownership of promoters of the company.

Overview A Long Call Butterfly is to be adopted when the investor is expecting very little movement in the stock price or index. The investor is looking to gain from low volatility at a low cost. The Long Call Butterfly strategy offers a good risk/reward ratio, together with low cost. A Long Call Butterfly is similar to a Short Straddle except your losses are limited. The strategy can be done by selling 2 ATM Calls, buying 1 ITM Call, and buying 1 OTM Call options (there should be equidistant between the strike prices). The result is positive in case the stock/index remains range bound. The maximum reward in this strategy is however restricted and takes place when the stock/ index is at the middle strike at expiration. The maximum losses are also limited. **When to use:**When the investor is neutral on market direction and bearish on volatility. **Risk:**Net debit paid **Reward:**Difference between adjacent strikes minus net debit Break even point:

Upper Breakeven Point = [Strike Price](https://upstx.gustya.com/learning-center/futures-and-options/strike-price/) of Higher Strike Long Call — Net Premium Paid
Lower Breakeven Point= Strike Price of Lower Strike Long Call + Net Premium Paid

Example Nifty is at 3200. Mr. XYZ expects very little movement in Nifty. He sells 2 ATM Nifty Call Options with a strike price of Rs. 3200 at a premium of Rs. 97.90 each, buys 1 ITM Nifty Call Option with a strike price of Rs. 3100 at a premium of Rs. 141.55 and buys 1 OTM Nifty Call Option with a strike price of Rs. 3300 at a premium of Rs. 64. The Net debit is Rs. 9.75. **Strategy:**Sell 2 ATM Call, Buy 1 ITM Call option and Buy 1 OTM Call Option To learn more about Trading Strategies visit Upstox Knowledge Base.

Overview A Long Call Condor is very similar to a long butterfly strategy. The difference is that the two middle sold options have different strikes. The profitable area of the pay off profile is wider than that of the Long Butterfly. The strategy is suitable in a range bound market. The Long Call Condor involves buying 1 ITM Call (lower strike), selling 1 ITM Call ( lower middle), selling 1 OTM call (higher middle) ad buying 1 OTM Call (higher strike). The long options at the outside strikes ensure that the risk is capped on both the sides. The resulting position is profitable if the stock/index remains range bound and shows very little volatility. The maximum profits occur if the stock finishes between the middle strike prices at expiration. **When to use:**When an investor believes that the underlying market will trade in a range with low volatility until the options expire. **Risk:**Limited to the minimum of the difference between the lower strike call spread minus the the higher call spread minus the total premium paid for the condor. **Reward:**Limited. The maximum profit of a long condor will be realised when the stock is trading between the two middle strike prices. Break Even Point: Upper Breakeven Point= Highest Strike—Net Debit Lower Breakeven Point= Lowest Strike+Net Debit Example Nifty is at 3600. Mr. XYZ expects little volatility in the Nifty and expects the market to remain range bound. Mr. XYZ buys 1 ITM Nifty Call Options with a strike price of Rs. 3400 at a premium  of Rs. 41.25, sells 1 ITM Nifty Call Option with a strike price of Rs. 3500 at a premium of Rs. 26, sells 1 OTM Nifty Call Option with a strike price of Rs. 3700 at a premium of Rs. 9.80 and bus 1 OTM Nifty Call Option with a strike price of Rs. 3800 at a premium of Rs. 6. The Net debit is Rs. 11.45 which is also maximum possible loss. **Strategy:**Buy 1 ITM Call Option (Lower Strike), Sell 1 ITM Call Option (Lower Middle), Sell 1 OTM Call Option ( Higher Middle), Buy 1 OTM Call Option (Higher Strike)

Overview For aggressive investors who are bullish about a stock/index’s prospects, buying calls can be an excellent way to capture the upside potential with limited downside risk. Buying a call is the most basic of all options strategies. It constitutes the first options trade for someone familiar with buying/selling stocks and would now want to trade options. Buying a call is easy to understand—if you buy a call, it means you are bullish—you expect the underlying stock/index to rise in the future. **When to use:**Investor is very bullish on the stock/index. **Risk:**Limited to the premium (Maximum loss if market expires at or below the option strike price). **Reward:**Unlimited **Breakeven:**Strike Price+Premium **Example:**Mr. XYZ is bullish on Nifty on June 24, when the Nifty is at 4191.10. He buys a call option with a strike price of Rs. 4600 at a premium of Rs. 36.35, expiring on July 31. If the Nifty goes above 4636.35, Mr. XYZ will make a net profit (after deducting the premium) on exercising the option. In case the Nifty stays at or falls below 4600, he can forego the option (it will expire worthless) with a maximum loss of the premium. Analysis: This strategy limits the downside risk to the extent of premium paid by Mr. XYZ (Rs.36.35). But the potential return is unlimited in case Nifty rises. A long call option is the simplest way to benefit if you believe that the market will make an upward move and is the most common choice among first time investors in Options. As the stock price/index rises the long Call moves into profit more and more quickly.

Overview A Long Combo is a Bullish strategy. If an investor is expecting the price of a stock to move up he can do a Long Combo strategy. It involves selling a lower strike (OTM) Put and buying a higher strike i.e OTM Call. Long Combo strategy simulates the action of buying a stock or futures but at a fraction of the stock price. It is an inexpensive trade similar in pay-off to Long Stock—except there is a gap between the strikes. This is a fairly complex options strategy. It requires that the trader knows how options move with the underlying, and more importantly, how selling out of the money (OTM) put options and buying out of the money (OTM) call options can have an impact on the trade. The secret to a successful trade is to ensure that the timing of the trades is done in tandem and that the correct strike prices are chosen. It is important to note that the risk is unlimited since you are selling a OTM Put option (anytime you sell a put option your risk is unlimited). The stratey can work out very well. As the stock price of the underlying rises the strategy starts making profits as both the OTM Call and the OTM Put generate profits together. Let us try an understand Long Combo with an example. **When to use:**Investor is **Bullish **on the stock. **Risk:**Unlimited (Lower Strike + net debit) **Reward:**Unlimited **Breakeven:**Higher strike + net debit Example A stock ABC Ltd. is trading at Rs. 450. Mr. XYZ is bullish on the stock. But does not want to invest Rs. 450. He does a Long Combo. He sells  a Put option with a strike price Rs. 400 at a premium of Rs. 2. The net cost of the strategy (net debit) is Rs. 1.

Overview Buying  a Put is the opposite of buying a Call. When you buy a Call, you are bullish about the stock/index. When an investor is bearish, he can buy a Put option. A Put Option gives the buyer of the Put a right to sell the stock (to the Put seller) at a pre-specified price and thereby limits risk. A long Put is a bearish strategy. An investor can buy Put options to take advantage of a falling market. **When to use:**Investor is bearish about the stock/index i.e. the investor feels that there is a risk that the prices of the stock are going to fall in the future. **Risk:**Limited to the amount of Premium paid—maximum loss if stock/index price expires at or above the option strike price. **Reward:**Unlimited. **Break-even Point:**Stock Price-Premium Example: Mr. XYZ is feeling bearish about Nifty on June 24, when the Nifty is at 2694. He buys a Put option with a strike price Rs. 2600 at a premium of Rs. 52, expiring on July 31. If the Nifty goes below 2548, Mrs. XYZ will make a profit on exercising the option. In case the Nifty rises above 2600, he can forego the option (it will expire worthless) with a maximum loss of the premium. Analysis A bearish investor can profit from declining stock prices by buying Puts. She/he limits his risk to the amount of premium paid but his profit potential remains unlimited. This is one of the widely used strategies when an investor is bearish.

Overview of a Long Straddle Strategy A straddle is a volatility strategy. It is used when the stock price/index is expected to show large movements. This strategy involves buying a call and a put on the same stock/index for the same maturity and strike price. It takes advantage of a movement in either direction. A soaring or plummeting value of the stock/index both work. A Long Straddle Strategy is used when the direction is neutral. The trader is looking for the underlying have high volatility.  If the price of the stock/index increases, the call is exercised while the put expires worthless and if the price of the stock/index shows volatility to cover the cost of the trade, profits are to be made. Remember: With Straddles, the investor is direction neutral. All that he is looking out for is the stock/index to break out exponentially in either direction. Assume you are dealing with a stock that is expected to have some very important news to be released in the very near future (say, an earnings report). You know for a fact that in the past, through back testing, the stock significantly jumped up in volatility and the price spiked up or down as soon as the news was released. Knowing this, a Long Straddle strategy can be applied. The trader can simply look to buy  the appropriate Call based on the nearest strike price and a Put at the same time. This limits the risk. When a Long Straddle is used: A Long Straddle is used when the investor thinks that the underlying stock/index will experience significant volatility in the near term. Risk: Limited to the initial premium paid. Reward: Unlimited. Breakeven: —Upper Breakeven Point=Strike Price of Long Call +Net Premium Paid —Lower Breakeven Point=Strike Price of Long Put—Net Premium Paid Learn more about option trading strategies in our knowledge base section.

Overview A strangle is a slight modification to the Straddle to make it cheaper to execute. This strategy involves simultaneous buying of two options. One is a slightly out-of-the-money (OTM) put. The second a slightly out-of-the-money (OTM) call. Both are of the same underlying stock/index and expiration date. Here again the investor is directionally neutral. However, he is looking for an increased volatility in the stock/index. He also expects the prices to move significantly in either direction. The cost of executing a Strangle is usually cheaper as compared to a Straddle. That is because OTM options are purchased for both Calls and Puts where generally ATM strikes are purchased for a straddle.  Since the initial cost of a strangle is cheaper than a Straddle, the returns could potentially be higher. However, for a Strangle to make money, it would require greater movement on the upside or downside for the stock/index than it would for a straddle. As with a Straddle, the strategy has a limited downside (i.e. the Call and the Put premium) and unlimited upside potential. For example, suppose the ATM Strike for Nifty is 8200. The trader, using a Long Strangle Strategy, would buy a 8400 Call and a 8400 Put at the same time. The different between this and a Long Straddle Strategy is that with a Strangle, if the the underlying does have volatility, the trader can earn more with the 8400 Strangle versus a 8200 Straddle assuming the volatility is high enough. Therefore, the trader is better on not just volatility, but a high amount of it in order for the strategy to be a success. When to use: The investor thinks that the underlying stock/index will experience very high levels of volatility in the near term. Risk: Limited to the initial premium paid Reward: Unlimited Breakeven:

Upper Breakeven Point = [Strike Price](https://upstx.gustya.com/learning-center/futures-and-options/strike-price/) of Long Call + Net Premium Paid
Lower Breakeven Point= Strike Price of Long Put—Net Premium Paid

Each Futures contract has a lot size. The Nifty Future, for example, has a lot size of 50: meaning each Nifty Future contract represents 50 Nifty underlyings. Similarly, each Equity Future has a lot size. Reliance Futures, for example, has a lot size of 250: so each Reliance Future is  equivalent to 250 Reliance shares. Therefore, a Futures contract has a value equivalent to its price x lot size. If the Nifty Near Month contract is trading at 5500, then its value becomes Rs. 5500 x 50 = Rs. 275,000.   Read more about Futures in our knowledge base section.

The MACD indicator allows traders to determine the current trend and forecast the direction in which the prices are likely to move. Traders, using this indicator, can determine the rate of change in prices. The Moving Average Convergence-Divergence indicator, or MACD, is a trend indicator that shows the relationship between two moving averages of security's price during a bullish or bearish market. It can be used to signal entry or exit opportunities in a particular stock.  The MACD line is determined by subtracting the 26-period exponential moving averages (EMAs) from the 12-period EMA.  MACD works best with daily periods— typically 26, 12, and 9 days. What is MACD? Created by Gerald Appel during the 1970s, the MACD indicator defines momentum and its directional resilience by computing the difference between two-time intervals, which are a compilation of historical time series. It uses moving averages of two different time intervals – usually historical closing prices of securities— and a momentum oscillator line is calculated by deducting the two moving averages, also known as 'divergence.' The two moving averages are chosen using exponential moving averages (EMA) based on the criteria that one should have a shorter period than the other. Plotted on top of the MACD line or zero line, the nine-day EMA, also referred to as the signal line, serves as a trigger for ‘buy’ or ‘sell’ signals. Traders may buy the security when the MACD line crosses above the signal line, and sell it in case the MACD line remains below the signal line. Instead of crossing the signal line, when the MACD line remains at the zero level and gets positive, it indicates a bullish trend. The MACD indicates a bearish trend when it crosses the zero line in the downward direction and becomes negative. The MACD indicator allows traders to determine the current trend and forecast the direction in which the prices are likely to move. Traders, using this indicator, can determine the rate of change in prices. The MACD indicator appears on the price chart as an oscillator with two moving averages. However, unlike other oscillators, it lacks boundaries. It is completed with an MACD histogram that overlays the two moving averages. MACD indicators are usually interpreted using crossovers, divergences, and rapid rise/fall methods.  How to read MACD on a graph? The MACD indicator includes three components: MACD line, signal line and MACD histogram. Let’s take a look at these three components: 

• MACD Line (short-term EMA) , represented typically in blue, is calculated by subtracting a short-term 12-day EMA from a long-term EMA, which is generally 26 days. 

Line MACD = (26-day EMA) - (12-day EMA)

• Signal Line (long-term EMA), typically represented in red, is a 9-day average of the closing prices. 
• MACD histogram is the difference between the MACD line and the signal line. It is positive when MACD is over the signal line and negative when the indicator is below it.

A positive MACD or a higher histogram is an indicator of building momentum. In such cases, the stock's price rises. Similarly, when the MACD and histogram values fall, it indicates that the price is likely to go down and any holding should be cleared by selling. However, MACD has its own set of limitations. One key limitation of this method is that it often signals a possible reversal while there may not be any such reversals. Since MACD is based on EMA, focused on more recent data, it may react actively to the direction of change in current prices. Traders also take into account other signals, including RSI, along with MACD for confirmation. **In conclusion ** MACD could be an effective tool for the traders who rely more on the technical analysis of share price movement depending on moving-average and daily data. As MACD is based on exponential moving averages, it relies on the most recent data and could help the traders to get an indication about the changes of direction in the current price movement.

A market order is an order where the trade will be executed at the current prevailing market price. The opposite of a market order is a limit order.

Trading on the SME (Small Medium Enterprises) platform Stock market investing involves a wide array of options. It is not just about buying and selling shares in the secondary market. There are so many different strategies out there. Not to mention, different markets. You have the Initial Public Offer (IPO) or primary market, the derivatives segment, and now the latest Small-Medium Enterprises (SME) exchange. For savvy investors looking for newer, more profitable options, the SME exchange can be a great platform. What is SME? Usually, companies listed their shares on the exchange in the primary market through an Initial Public Offer (IPO). This included firms of all sizes – small, medium and large. However, small and medium enterprises had a greater scope of risk than larger companies. Investors needed a high degree of stock market knowledge to sift through the companies and find companies that matched their risk appetite. This is not possible for every investor. As a result, many small investors made losses. To avoid this, both NSE and BSE created separate exchanges in India catering only to small and medium-sized firms. The BSE calls it SME exchange, while NSE’s exchange is called ‘Emerge.’ Why should you trade SMEs? There are so many small and medium-sized companies listed on the regular stock market segment. It is difficult for the interested investor to sift through the thousands of smallcap and midcap stocks to identify value-making companies. This is not so in the SME exchange. It is a niche segment for small and medium enterprises, which have the potential to give higher returns. Moreover, the exchanges have entry restrictions like positive net worth and cash flows for two years before listing. Also, companies, which had once applied for winding up or restructuring, are not allowed to list on the exchange. These restrictions help insulate investors from additional risk. How do you trade SMEs? Trading on the SME exchanges is almost like the normal buy and sell procedure. It does not require any extra procedures. However, some trading rules differ. For one, the SME exchange has a larger-than-normal lot size – the minimum number of shares you can buy or sell in each transaction. You cannot trade amounts lower than Rs 1 lakh. Also, the lot size varies with the price of the stocks. For example, on the NSE Emerge, if the stock price is lower than Rs 14, then the lot size is 10,000. However, if the stock price is between Rs 120 and Rs 150, then the lot size falls to 1,000. Other trading guidelines These stocks are traded in the cash segment. They can be bought and sold either in the continuous market or specifically in the call auction market. Just like the normal cash segment, these shares fall into different series like the ‘rolling settlement,’ ‘block trading window,’ ‘ odd lot trading,’ and so on. Moreover, you can place both market as well as limit orders just like a normal trade. These can be modified and cancelled until processed. Once settled, the shares will be delivered in T+2 days. Liquidity Some care should be taken while trading on the SME exchanges in India. First of all, investors should know that the risk factor is quite high while investing in small and medium sized companies. Yes, they are capable of giving really great returns, but they also have a higher than average probability of turning bust. Ensure you get your research correct. Also, liquidity is lower on the SME exchanges. Unlike the regular exchange, your order may not find a matching buyer/seller immediately. In such a case, the exchange may also cancel order, especially in the call auction market. Know more about online trading in our trading basics section.

Minimum subscription refers to the minimum number of shares that a company needs to get out of the entire issue by the date of closure. Currently, every company is required to raise 90% of the issues amount. Else, the company is required to refund the complete amount that has been received. The mentioned 90% has to be the cheques which are not cleared. Points to remember:

• The infrastructure companies that have a public issue, for them 90% of minimum subscription is not compulsory and is to be given by an alternative source through which the fund will be available to the company.
• A legal precedent for Minimum Subscription was created under the Companies Act of 1956. It states that the company is allowed to offer only a certain amount of shares to the public, for which the company can actually pay.

Maharashtra State Co-operative Cotton Growers Marketing Federation is one of the world’s largest suppliers of cotton. It produces over 3.5 million bales of cotton, and has exports exceeding USD 400 million. It provides support to over millions of cotton farmers in India. It’s headquartered in Nagpur, the third-largest city of Maharashtra. Points to remember

• The MSCCGMF is cooperative federation of cotton growers, and is one of the largest suppliers of cotton in the world.
• It is a state controlled body chaired by Usha Shinde, the first woman chairperson of this federation.
• They have produced around 39,641 quintals of cotton hitherto.

Minimum Support Prices (MSP), is an initiative of the Government of India to protect producers against any steep fall in prices of agricultural products. The minimum support prices are announced for certain crops at the beginning of the sowing season, based on recommendations given by the Commission for Agricultural Costs and Prices (CACP). The prices are fixed, and are put in place for insuring farmers against any excessive fall in the prices of produce during bumper production years. Points to remember

• The minimum support price is the minimum, fixed and guaranteed price below which the prices of the commodities cannot fall.
• MSP ensures that farmers get adequate income for their produce from the government.
  MSP is calculated by considering various factors such as production cost, demand and supply, market trends, and changes in input prices.

Example

• The minimum support price for Barley was Rs. 1325 per quintal for the year 2016-2017.
• The minimum support price fixed by the Government of India for various commodities over the years (2010-2017) can be viewed here.

Any firm or an individual who facilitates buying and selling of units within a mutual fund between an AMC (Asset Management Company) and interested investors, is categorised as a mutual funds distributor. A distributor is basically an agent supplying goods to a retailer. The mutual fund distributor receives payment in advance for each investor they bring in. A distributor who is licensed by AMFI to provide market advice can advise investors regarding the mutual fund schemes they pick. Points to remember:

• A distributor may be able to sell limited goods of a company or a range of products according to the agreement they have signed.

Example: Upstox is a mutual funds distributor but does not provide advise on the types of mutual fund schemes you should invest in. It is a broker who gives you an easy-to-use platform to invest in the funds that suit your financial goals.

National Bank for Agriculture and Rural Development (NABARD) in India is a financial institution which deals with matters pertaining to policy, planning and operations in the fields of agriculture and economic development in rural areas. It is involved in many developmental activities such as working on the betterment of tribal communities’ livelihood, promotion of cotton industries and working on increasing crop productivity. Points to remember

• NABARD looks after the development of various rural industries such as the cottage industry.
• It is responsible for conducting activities for agricultural research and rural development.
• NABARD also takes care of rural finance in collaboration with the Government of India, Reserve Bank of India, and other national policy-making bodies.

National Agricultural Cooperative Marketing Federation of India limited was established with the aim of promoting cooperative marketing of agricultural produce, for the benefit of farmers. Further objectives include organising, processing and storage of the agricultural, horticultural and forest produce, distribution of agricultural machinery, and to provide technical advice to its members, partners and associates. Points to remember:

• NAFED is a cooperative marketing federation that was set up for the benefit of farmers and agricultural societies in India.
• In addition to promotion of agricultural marketing, NAFED distributes the farmers’ produce and offers technical advice.
• NAFED also undertakes grading, packing and standardization of agricultural produce and other articles.

National Securities Depository Limited is an Indian central securities depository, based in Mumbai. It was the first electronic securities depository in India that was established on November 8, 1996. NSDL was established with national coverage that was based on a suggestion given by a national institute which was responsible for the economic development of India. Points to remember:

• National Securities Depository Limited is majorly promoted by Industrial Development Bank of India, Administrator of Specified Undertaking of Unit Trust of India, and National Stock Exchange of India Limited.
• National Securities Depository Limited stays as intermediary among the registrar and the company for the dematerialization of the shares.

National Board of Trade; an Indore based national multi-commodity exchange. Being a major futures market for edible oils, NBOT is making attempts to become a national commodity exchange; thereafter qualifying the body to stand at par with other national exchanges such as MCX, NCDEX, NMCE and ICEX. Currently, the National Board of Trade is a public, non-governmental company with an authorized share capital of over 10 crores. It was earlier known as Soyabean Board of Trade. Points to remember:

• NBOT or the National Board of Trade is a commodity exchange located at Indore.
• NBOT is India’s only soya commodity exchange, and is taking steps to start futures trade in palm oil.
• It is also making efforts to start futures in other commodities such as chickpeas, gram, and cotton seeds.

National Commodity and Derivatives Exchange of India (NCDEX) is a demutualised online commodity exchange that is promoted by various bodies such as ICICI Bank, Canara Bank, NABARD, IFFCO, CRISIL, and NSE. It provides futures trading in different commodities, such as Mustard seed, Soy Bean, and Cotton seed oilcake. Points to remember:

• The National Commodity and Derivatives Exchange of India is an exchange that deals with commodities such as wheat, turmeric, sugar, jeera, maize, Cotton seed Oilcake and Mustard seed.
• Its shareholder consortium includes various bodies such as National Stock Exchange of India (NSE) and Life Insurance Corporation of India (LIC).
• NCDEX has offices in Mumbai, Delhi, Ahmedabad, Jaipur, Hyderabad, Indore and Kolkata.

The capital that is issued after allotting it to the promoters, which would majorly be raised from the public is known as Net offer.

New Issue refers to a security that is issued, registered, and sold in a market for the first time. It doesn’t necessarily refer to the newly issued stocks, although the initial public offerings are one of the most commonly known new issues. Both debt and equity are the types of securities which can be newly issued. New issues are also known as primary shares or new offerings. Points to remember:

• Subsequent new issues might tend to come after the initial public offerings, but only one IPO can be there.
• The new issue of stocks is recorded on the balance sheet of the company as paid-in capital.
• The widely recognized kind of new issue is known as an initial public offering. This is the very first sale of the shares of a company.

The S&P CNX Nifty or what is also commonly known as NSE Nifty or Nifty fifty is an Indian stock index. This is basically an average of 50 indian stocks. The stocks on nifty keep changing regularly depending on liquidity, availibity & volume traded on the stocks

The Nifty is an index like Sensex. The Nifty is an indicator of the 50 top major companies on the National Stock Exchange (NSE). Sensex and Nifty serve as indicators of market movement. If the Sensex or Nifty rises, it signifies that the majority of stocks in India experienced an increase during the given period.Conversely, a decline in the Nifty indicates that the stock prices of most major stocks on the NSE have fallen.

NSE is the abbriviation for the National Stock exchange of India. The NSE is a leading stock exchange in India established in 1952 located in Mumbai.

The date on which the securities are first made available to the public is known as the offer date. Points to remember:

• The offer date is decided under the underwriting process.
• These dates can also be advertised for all the types of securities along with the stocks and managed funds, which are the two most common form of securities.

The prospectus that consists information regarding the public issue or offer for sale and in case of a rights issue, it is the letter of offer, which is filed with Stock Exchange and Registrar of Companies is known as Offer Document. This document covers every relevant information that helps an investor make his/her decision on investment. Points to remember:

• An offer document is a written document issued by a company for the shareholders of another company that explains why it wishes to purchase shares in their company and describes all the details related to its offers.

Trading as we know it has evolved a lot over the years and especially over the last two decades. Many years ago, trading was actually done at an exchange with hand signs and signals. Some of us might still remember it. Today it has changed drastically. Traders now trade over computer screens with hi-tech trading platforms. The terms online and offline trading evolved out of this prevalence of technology. What is Offline Trading? Offline trading is when you physically tell your broker to place a trade over an exchange. You can call your broker or visit the broker’s office. Your broker will do a verification of your profile and place a trade on your behalf. Offline trading is likely to take more time. There are chances of a lot of back and forth between the broker and the trader, and the broker and the exchange. During this transaction, chances are that the stock prices might move in a direction not favourable for the trader. Offline trading is slowly becoming less and less common. The most common practice nowadays is to place trades via an online trading platform. However, offline trading is crucial in case of technical failures. If the trader does not have access to strong internet connection, offline trading is the next best option. If the trader can afford to wait out the time that it takes to place a trade offline, then it is a good way of trading. Usually, it is better to trade offline if you are absolutely sure that the stock you are trading won't change much. What is Online Trading? Online trading is when a trader actually uses a trading platform to place his trades over the stock exchange. It is suited for short term trades since it reduces the time taken for someone to actually place a trade. Learn more about online trading!

The on-balance volume as an indicator represents an asset’s cumulative trading volume. It keeps adding volume on days when the price rises and subtracts it on the days when the price declines. On-balance volume (OBV) is one of the popular momentum indicators used by traders to predict the price of an asset using volume numbers. The indicator uses daily volume changes to make predictions of a bullish or bearish trend. OBV is essentially based on the principle that if volumes are increasing sharply without a significant change in an asset’s price, then the price will eventually move upwards or downwards. Hence, this indicator mainly tries to measure buying and selling pressure in an asset. The on-balance volume as an indicator represents an asset’s cumulative trading volume. It keeps adding volume on days when the price rises and subtracts it on the days when the price declines. Remember that one individual quantitative value of OBV does not hold any meaning. Instead, it is the movement of OBV over time that is analysed and used for interpretation. Comparing the movement of OBV with the actual asset price over a period can also help traders forecast future price shifts. Let’s explain this in detail. How is OBV calculated? As mentioned earlier, OBV is a cumulative indicator. This means it is the running total of positive volume and negative volume. Positive volume is the volume on up-days and negative volume is the volume on down days. In other words, all of the day’s volume is added when the stock price closes higher than its previous close, whereas all of the day’s volume is subtracted when the stock closes lower than its previous close. OBV calculation begins with volume at any previous point in time – say close of the previous trading day.  Now three situations arise:Case 1: If the closing price of the asset is higher than the previous day’s closing price. In that scenario:OBV = Previous OBV + Current Day’s Volume **Case 2:**If the closing price of the asset is lower than the previous day’s closing price, then: OBV = Previous OBV – Current Day’s Volume Case 3: If the closing price of the asset is the same as the previous day’s closing price:OBV = Previous OBV + 0 Therefore, OBV will rise over a time when trading volumes on up-days will outweigh the trading volumes on down-days. The trend of rising OBV highlights positive volume pressure that can lead to higher prices. Similarly, OBV would fall when volume on down-days is much higher than volume on up-days, hinting at a bearish trend. Also, if the OBV indicator makes a significant move without an accompanying move in the price of the asset, a possible trend reversal can be anticipated. For example, if volume begins to sharply increase or decrease even as the stock price remains relatively flat, then OBV will show significant movement even as stock price is stable. This indicates that the greater amount of buying or selling is likely to result in a sharp price movement to the upside or downside in the near term. Limitations of OBV As is the case with other momentum indicators, the biggest drawback of OBV is that it is limited to volume data and does not consider other important factors that can affect the price movement of an asset. So, it should not be used in isolation. Rather, traders should use other indicators in combination with OBV while keeping a track of the news flow around an asset to make a more informed trading decision. Also, OBV may give false signals in a low-volume market. It should not be relied on if trading activity is thin in the asset. Conclusion OBV indicator uses trading volumes and price of an asset to measure buying and selling pressure. Traders can use OBV to foresee a trend reversal in the price of an asset. However, it should be used in conjunction with other momentum indicators to get a complete and more accurate picture of the markets.

Open-ended funds are always open to investment and redemptions. Open ended funds are the most common form of investment in Mutual funds in India. These funds do not have any lock-in period or maturities and are therefore open perennially. In open ended funds, the NAV is calculated daily on the value of the underlying securities at the end of the day. These funds are usually not traded on stock exchanges.

Options are versatile securities which are financial derivatives. Options are a contract between the one who holds the security and the one who writes up the contract. It is a contract that is not an obligation but just affords a buyer the right to call (buy) or sell (put) a particular security or a financial asset for a predetermined price on a particular day or at least in between a certain period of time.

Introduction to Options An option is a contract written by a seller that conveys to the buyer the right — but not the obligation — to buy (in the case of a call option) or to sell (in the case of a put option) a particular asset, at a particular price (Strike price / Exercise price) in future. In return for granting the option, the seller collects a payment (the premium) from the buyer. Exchange traded options form an important class of options which have standardised contract features and trade on public exchanges, facilitating trading among large number of investors. They provide settlement guarantee by the Clearing Corporation thereby reducing counter-party risk. Options can be used for hedging, taking a view on the future direction of the market, for arbitrage or for implementing strategies which can help in generating income for investors under various market conditions. Options Terminology

• Index options: These options have the index as the underlying. In India, they have a European style settlement. Eg. Nifty options, Mini Nifty options etc.
• Stock options: Stock options are options on individual stocks. A stock option contract gives the holder the right to buy or sell the underlying shares at the specified price. They have an American style settlement.
• Buyer of an option: The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/writer.
• Writer / seller of an option: The writer / seller of a call/put option is the one who receives the option premium and is thereby obliged to sell/buy the asset if the buyer exercises on him.
• Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price.
• Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price.
• Option price/premium: Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium.
• Expiration date: The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity.
• Strike price: The price specified in the options contract is known as the strike price or the exercise price.
• American options: American options are options that can be exercised at any time up to the expiration date.
• European options: European options are options that can be exercised only on the expiration date itself.
• In-the-money option: An in-the-money (ITM) option is an option that would lead to a positive cashflow to the holder if it were exercised immediately. A call option on the index is said to be in-the-money when the current index stands at a level higher than the strike price (i.e. spot price > strike price). If the index is much higher than the strike price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is below the strike price.At-the-money option: An at-the-money (ATM) option is an option that would lead to zero cashflow if it were exercised immediately. An option on the index is at-the-money when the current index equals the strike price (i.e. spot price = strike price).
• Out-of-the-money option: An out-of-the-money (OTM) option is an option that would lead to a negative cashflow if it were exercised immediately. A call option on the index is out-of-the-money when the current index stands at a level which is less than the strike price (i.e. spot price < strike price). If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price.
• Intrinsic value of an option: The option premium can be broken down into two components - intrinsic value and time value. The intrinsic value of a call is the amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it another way, the intrinsic value of a call is Max[0, (St — K)] which means the intrinsic value of a call is the greater of 0 or (St — K). Similarly, the intrinsic value of a put is Max[0,K — St],i.e. the greater of 0 or (K — St). K is the strike price and St is the spot price.
• Time value of an option: The time value of an option is the difference between its premium and its intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is an option's time value, all else equal. At expiration, an option should have no time value.

  The best profits from option are earned when they are combined together and placed as strategies. Learn more about option strategies on our strategies section.

Overview The optionality characteristic of options results in a non-linear payoff for options. In simple words, it means that the losses for the buyer of an option are limited, however the profits are potentially unlimited. For a writer (seller), the payoff is exactly the opposite. His profits are limited to the option premium, however his losses are potentially unlimited. These nonlinear payoffs are fascinating as they lend themselves to be used to generate various payoffs by using combinations of options and the underlying. We look here at the six basic options payoffs (pay close attention to these pay-offs, since all the strategies in the book are derived out of these basic payoffs).

• Payoff profile of buyer of asset: Long asset

In this basic position, an investor buys the underlying asset, ABC Ltd. shares for instance, for Rs. 2220, and sells it at a future date at an unknown price, St. Once it is purchased, the investor is said to be "long" the asset.

• Payoff profile of seller of asset: Short asset

In this basic position, an investor shorts the underlying asset, ABC Ltd. shares for instance, for Rs. 2220, and buys it back at a future date at an unknown price, St. Once it is sold, the investor is said to be "short" the asset.

• Payoff profile for buyer of call options: Long call

A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher the spot price, more is the profit he makes. If the spot price of the underlying is less than the strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid for buying the option.

• Payoff profile for writer (seller) of call options: Short call

A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. Whatever is the buyer's profit is the seller's loss. If upon expiration, the spot price exceeds the strike price, the buyer will exercise the option on the writer. Hence as the spot price increases the writer of the option starts making losses. Higher the spot price, more is the loss he makes. If upon expiration the spot price of the underlying is less than the strike price, the buyer lets his option expire un-exercised and the writer gets to keep the premium.

• Payoff profile for buyer of put options: Long put

A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price is below the strike price, he makes a profit. Lower the spot price, more is the profit he makes. If the spot price of the underlying is higher than the strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid for buying the option.

• Payoff profile for writer (seller) of put options: Short put

A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. Whatever is the buyer's profit is the seller's loss. If upon expiration, the spot price happens to be below the strike price, the buyer will exercise the option on the writer. If upon expiration the spot price of the underlying is more than the strike price, the buyer lets his option un-exercised and the writer gets to keep the premium.

Many a time, traders come across the term “risk-free trading”. Although in reality it is virtually impossible to trade a purely risk-free strategy, certain strategies can definitely fit the description of having less downside risk than others. Without a doubt, Pairs Trading falls into this category. Pairs trading involves the idea of choosing two correlated financial products (or groups of products), figuring out what their historical correlation is, and making the assumption that this correlation will hold true in the future. Essentially, a trader is betting that more likely than not, this correlation should hold true in the future. A skilled trader with proper knowledge of position sizing can effectively apply the concepts of Pairs Trading into his/her day-trading strategies. The Benefits of Pairs Trading Pairs Trading can be beneficial because it protects the trader from market wide sources of risk. A Pairs Trading strategy that is market neutral can protect the trader from market wide fluctuations. For example, if two stocks are highly correlated, a trader can sell the outperforming stock and purchase the under-performing stock. If the trader holds on to the belief that their relative correlation will come back to normal, then he/she is hedged against market wide movements; eventually, when the stocks regain their historical proportion/correlation, the trader can square off his/her two positions and earn a profit. Here is a basic example. Here are the daily closing prices of Reliance Industries (NSE:RELIANCE) and Essar Oil (NSE:ESSAROIL) for the past 7 trading days: RELIANCE ESSAROIL Ratio 765.35 63.35 12.08 771.2 64.4 11.98 765.85 64.85 11.81 773.75 66.05 11.71 773.65 68.25 11.34 786.8 68.2 11.54 798.3 69.8 11.44 Correlation 87.21% The correlation can be calculated easily in Microsoft Excel by using the CORREL function. Since the two products seem to be highly correlated, a trader can look make the judgement that the ratio between the two products should be between 11 and 13. Assume that the next day, the trader notices Reliance trading at 800, while EssarOil is trading at 73. The trader calculates that the ratio between the two products is less than 11 (800/73 = 10.95). Therefore, it seems that this is a good opportunity to get into a trade. In this example, the trader would sell EssarOil and buy Reliance since Reliance is relatively under-performing and EssarOil is relatively over-performing.  Since the ratio is approximately 11, the trader would sell 11 shares of EssarOil for every share of Reliance that he purchases. At this point, the trader’s true test arises: when should he/she exit the trade? Patience can be the most difficult aspect of trading! Eventually, the trader is looking to exit the trade once the ratio stabilizes to above 11 and the trader can earn a profit. It is generally a good idea to set yourself a profit objective (and if possible, a stop loss) when entering a trade. In our example, the trader might set the profit objective to be a ratio between the two products. Since the trader felt that 13 was relatively high ratio between the two products, he/she can set 13 as the ratio the products must hit in order for him to exit the trade. Eventually, the trader notices Reliance is trading at 760 and EssarOil is trading at 58.45. The ratio has breached 13! The trader immediately sells Reliance and purchases EssarOil. If he/she had executed 110 shares of EssarOil and 10 shares of Reliance, his/her net profit (before costs) would have been: EssarOil: (73-58.45) x 110 = Rs. 1600. 50 profit Reliance: (760-800) x 10 =  Rs. 400 loss Net: Rs. 1200.50 profit As you can see, although the market had dropped between his two series of transactions (both Reliance and EssarOil fell in price), the trader was able to earn a profit by hedging his trades. This is the power of Pairs Trading! Getting Started Pairs trading, in its simplest form, can be done by calculating the correlation between any two single financial instruments. Similar to the above example, a trader can use the same exact concept to do Pairs Trading on Cash-Futures arbitrage. This is where you would pit the near month futures product of a security against its Cash underlying. There are a few important concepts to remember if you want to implement a Pairs Trading strategy.

• Ensure that it makes intuitive sense for the two products to be correlated! For example, a trader might notice that a Nifty Call Option seems to be highly correlated with USD/INR January Futures by plugging in the data and calculating the correlation. However, just because the data shows a correlation does not mean that there is a cause for the correlation! As the old adage goes, “correlation does not imply causation!”
• Use a high sample size to calculate the correlation. In the earlier example, we used only 7 days worth of data for calculating the correlation between Reliance Cash and EssarOil Cash; a knowledgeable trader should look to ensure that the stocks have had a steady, consistent correlation for many months before making his/her trading decisions.
• Use proper position sizing! In our previous example we executed 11 shares of EssarOil for every share of Reliance. In general, it is wise to ensure that the market value of the two transactions is as close as possible.
• Use profit objectives and stop losses. After entering a trade, implement a mental stop loss and profit objective; this keeps the guesswork out of the game and allows you to trade emotion-free. The profit objective and/or stop loss can be hard prices or based on ratios.

Conclusion In conclusion, Pairs Trading can be a highly effective way for you to hedge your risks while trading. It does a good job at eliminating market-wide risk that allows you to remain market neutral. While you probably will not earn a large amount on any one trade, your downside risk is also minimized which gives you peace of mind. If you are willing to do some homework, implement proper position sizing, and are able to remain patient, Pairs Trading can be an effective way for you to hedge your risks in all types of different market conditions.

Price band refers to the range within which a stock can move in a trading session. On the other hand, Circuit breakers are basically price bands for indices. When breached, these circuit breakers bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The stock exchanges around the world have devised several rules and mechanisms to ensure fair trading practices while maintaining market stability. It is to achieve this objective that bourses use tools like price-bands and circuit-breakers. Price-bands and circuit-breakers broadly refer to a range within which the price of a financial security can fluctuate. While price-bands are set for stock prices, circuit breakers are used for indices. Setting such limits prevent extreme price fluctuations, or panic selling and buying on any given day. The upper and lower limits of these bands are set by exchanges based on the guidelines laid out by the capital market regulator and can be adjusted based on market conditions. As an investor, you should be well-informed about these concepts in order to safeguard your position in times of extreme market volatility. Let us help you understand in detail how price-bands and circuit breakers work in the Indian stock markets. Price bands Price band refers to the range within which a stock can move in a trading session. For instance, a 10% price band for a stock that closed at ₹100 in the previous session implies that it can move anywhere between ₹90 and ₹110 in the ongoing session.  Trades executed outside this price band would not be allowed and considered invalid. The buying and selling activities would be suspended as soon as the stock hits the upper or lower end of this price range. Taking the above example, if the stock hits its lower limit of ₹90 during the trading session, it would be “locked” in a lower circuit. This means that no more sell orders can be placed on the counter and the share price can’t go lower than this level. However, the price may increase again to move within the range in case traders start buying the stock. Stocks can have different daily price bands as listed below:

Daily price bands of 2% (either way)
Daily price bands of 5% (either way)
Daily price bands of 10% (either way)
No price bands are applicable on scrips on which derivative products are available
Price bands of 20% (either way) on all remaining scrips (including debentures, preference shares etc.)
Stocks on which no derivatives products are available but which are part of index derivatives are also subjected to price bands

The price bands can be changed for a stock from time to time. The downward revision is a daily process, whereas upward revision is a bi-monthly process, subject to satisfaction of certain objective criteria. Circuit breakers Circuit breakers are basically price bands for indices. When breached, these circuit breakers bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The index-based circuit breaker system applies at three stages of the index movement either way -- at 10%, 15% and 20% compared with its previous close. These circuit breakers can be triggered by movement of either the BSE Sensex or the Nifty 50, whichever is breached earlier. The purpose of the halt is to give traders time to evaluate market movement and determine the future course of action. This lends stability to the system and protects investor interest. After every halt, the market reopens with a pre-opening session. The duration of the market halt varies depending on the quantum and timing of the movement of the index (check the table below).  Trigger limit Trigger time Market halt duration 10% Before 1:00 pm 45 minutes At or after 1:00 pm up to 2:30 pm 15 minutes At or after 2:30 pm No halt 15% Before 1:00 pm 1 hour 45 minutes At or after 1:00 pm up to 2:30 pm 45 minutes At or after 2:30 pm Remainder of the day 20% Anytime during market hours Remainder of the day To conclude It can be said that price-bands and circuit breakers act as protection gear for investors in special circumstances when sentiments overrule logic and markets spiral towards one direction.

This is a strategy wherein an investor has gone short on a stock and buys a call to hedge it. This is the opposite of a synthetic Call (Strategy 3). An investor sells or shorts a stock and buys an At The Money (ATM) or slightly Out of The Money (OTM) Call. [An ATM call is one whose strike price is at or very near to the current market price of the underlying security. An OTM call is one whose strike price is higher than the market price of the underlying asset.] The net effect of this is that the investor creates a pay-off like a long Put, but instead of having a net debit (paying premium) for a long Put, he creates a net credit (receives money on shorting the stock). In case the stock price falls, the investor gains in the downward fall in the price. However, in case there is an unexpected rise in the price of the stock, the loss is limited. The pay-off from the Long Call will increase, thereby compensating for the loss in the value of the short stock position. This strategy hedges the upside in the stock position while retaining downside profit potential. When to Use: If the investor is of the view that the markets will go down (bearish) but wants to protect against any unexpected rise in the price of the stock. Risk:** Limited. The maximum risk is Call strike price – Stock price + Premium Reward:** Maximum is the stock price – Call premium Breakeven: Stock price – Call premium

Overview of Protective Call or Synthetic Long Put A Protective call or synthetic long put is a strategy where an investor has gone short on a stock and buys a call to hedge. This is an opposite of Synthetic Call. An investor shorts a stock and buys an ATM or slightly OTM Call. The net effect of this is that the investor creates a pay-off like. This not unlike a Long Put. However, instead of having a net debit (paying premium) for a Long Put, he creates a net credit (receives money or shorting the stock). In case the stock price falls, the investor gains in the downward fall in the price. However, in case there is an unexpected rise in the price of the stock, the loss is limited. The pay-off from the Long Call will increase thereby compensating for the loss in value of the short stock position. This strategy hedges the upside in the stock position while retaining downside profit potential. This is a fairly advanced options strategy. **When to Use:**If the investor is of the view that the markets will go down (bearish) but whats to protect against any unexpected rise in the price of the stock. **Risk:**Limited. Maximum Risk is Call Strike Price—Stock Price+Premium **Reward:**Maximum is Stock Price — Call Premium **Breakeven:**Stock Price—Call Premium

As a momentum oscillator, Relative Strength Index (RSI) analyses the speed and change of price movements in a stock to indicate whether it looks ‘overbought’ or ‘oversold’. In simple words, being overbought means a stock is overpriced. An asset can be called overbought if it starts trading much above its calculated value. The biggest struggle for any trader is not to get caught in a market trend at the wrong time, just when the reversal is around the corner. Often it is seen that buyers rush towards an asset when it is rallying, or sellers start dumping a stock as soon as a sell-off is triggered. In this rush, it gets difficult for traders to assess whether a security is ‘overbought’ or ‘oversold’? This is when the Relative Strength Index, popularly known as RSI, comes into the picture. In technical trading, RSI helps the traders to assess the strength of a stock and the momentum. RSI is essentially a popular momentum oscillator used by traders. Now what exactly is momentum oscillator? A momentum oscillator is basically a technical analysis tool that is used to identify the strength or weakness of a particular trend in the market. As a momentum oscillator, RSI analyses the speed and change of price movements in a stock to indicate whether it looks ‘overbought’ or ‘oversold’. What do ‘overbought’ and ‘oversold’ mean? In simple words, being overbought means a stock is overpriced. An asset can be called overbought if it starts trading much above its calculated value. Similarly, when the asset trades lower than its perceived fair value, it is said to be oversold. When a security is considered overbought, a price correction is likely to follow. In that situation, traders should start selling the security before the market becomes unfavourable for them. If the security is being seen as oversold, it is time for traders to take fresh long positions in the asset. RSI, therefore, helps traders determine the correct levels to exit or enter a security when it is caught in an upward or downward spiral. How is RSI calculated? The value of RSI fluctuates between 0 and 100. Any value below 30 indicates ‘oversold’ conditions, while value above 70 hints at ‘overbought’ situations. A value of 50 indicates a balance between bullish and bearish positions and is considered a ‘neutral’ condition. Simply put, an RSI reading below 30 can be interpreted as a ‘Buy’ indication for a stock, while that above 70 can be seen as a ‘Sell’ signal. Formula to calculate RSI The average time period used to calculate RSI for a security is 14 trading days. Let’s say a stock was up in 10 of those days and down on the other 4. Then, as the first step to calculate RSI, the average daily gain for those 10 days should be divided by 14. This would give the ‘initial average gain’. Similarly, the average loss of 4 days should be divided by 14, which would give the ‘initial average loss’. In the second step, you should calculate the relative strength (RS) which is the ratio of initial average gain and initial average loss. RS = Initial Average Gain/Initial Average Loss Once you have got the RS, you can calculate RSI using the following formula:RSI = 100 - (100/1 + RS) This calculation will give you the first RSI for your stock. You can also build the RSI chart further using subsequent closing prices of the stock after 14 days. To calculate the second RSI for the stock to build a graph, you will need an extra closing price for the stock, which would give you a new average. **New average gain = **[(previous initial average gain) x 13 + current daily gain]/14 New average loss = [(previous initial average loss) x 13 + current daily loss]/14 Once you have got new averages, recalculate the Relative Strength and get a second RSI value using the same formula. This way, you can keep building the RSI chart. What are the limitations of RSI? Momentum oscillators like RSI do not take into account any change in the fundamental conditions of the stock. All estimates of being overbought or oversold just depend on the price action. Let us suppose that the share price of a company is falling day after day due to an adverse policy change by the government that will drastically affect profitability, Now, RSI might indicate that the stock is ‘oversold’, when actually the share price is just adjusting to the new estimated earnings. Hence, traders should ideally depend on RSI only when fundamental factors are not at play. Also, it is not advisable to rely on RSI indications during a bull or bear market, when there is broad-based selling or buying across all sectors and stocks, as the values may become erroneous. To sum up The Relative Strength Index, or RSI, can prove to be an extremely useful momentum indicator for day traders to get reliable ‘buy’ or ‘sell’ calls if used wisely in combination with other momentum oscillators. Along with the RSI, the traders also take into account the fundamental analysis of the asset.

The Sensex is an index which is also known as the BSE 30, is a stock market index comprising 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). Sensex and Nifty serve as indicators of market movement. If the Sensex or Nifty rises, it signifies that the majority of stocks in India experienced an increase during the given period. Conversely, a decline in the Sensex indicates that the stock prices of most major stocks on the BSE have fallen.

A share market is a marketplace where shares of publicly listed companies are issued and traded through stock exchanges or in over-the-counter markets.

Overview When you buy a Call you are hoping that the underlying stock/index would rise. When you expect the underlying stock/index to fall you do the opposite. When an investor is very bearish about a stock/index and expects the prices to fall, he can sell Call options. This position offers limited profit potential and the possibility of large losses on big advances in underlying prices. Although easy to execute, short call is a risky strategy because the seller of the call is exposed to unlimited risk. A Call options means an Option to buy. Buying a Call option means an investor expects the underlying price of a stock/index to rise in the future. Selling a Call option is just the opposite. Here, the seller of the option feels the underlying price of the stock/index is set to **fall in the future. ** **When to use:**Investor is very aggressive and he is very bearish about the stock/index. **Risk:**Unlimited. **Reward:**Limited to the amount of premium ** ** **Break-even Point:**Strike price +premium Example Mr. XYZ is bearish about Nifty and expects it to fall. He sells a Call option at a strike price of Rs. 2500 at a premium of Rs. 154, when the current Nifty is at 2694. If the Nifty stays at 2600 or below, the Call option will not be exercised by the buyer of the Call and Mr. XYZ can retain the entire premium of Rs. 154. Analysis This strategy is used when an investor is very aggressive and has a strong expectation of a price fall (and certainly not a price rise). This is a risky strategy since as the stock price/index rises, the short call loses money more and more quickly and losses can be significant if the stock price/index falls below the strike price. Since the investor does not own the underlying stock that he is sorting this strategy is also called Short Naked Call.

Overview A Short Call Butterfly is a strategy for volatile markets. It is the opposite of Long Call Butterfly, which is a range bound strategy. The Short Call Butterfly can be constructed by Selling one lower striking in-the-money Call, buying two at-the-money Calls and selling another higher strike out-of-the-money Call, giving the investor a net credit (therefore it is an income strategy). There should be equal distance between each strike. The resulting position will be profitable in case there is a big move in the stock/index. The maximum risk occurs if the stock/index is at the middle strike at expiration. However, this strategy offers very small returns when compared to straddles, strangles with only slightly less risk. **When to use:**You are neutral on market direction and bullish on volatility. Neutral means that you expect the market to move in either direction—i.e. bullish and bearish. **Risk:**Limited to the net difference between the adjacent strikes (Rs. 100 in this example) less the premium received for the position. **Reward:**Limited to the net premium received for the option spread. Example Nifty is at 3200. Mr. XYZ expects large volatility in the Nifty irrespective of which direction the movement is, upwards or downwards. Mr. XYZ buys 2 ATM Nifty Call Options with a strike price of Rs. 3200 at a premium of Rs. 97.90 each, sells 1 ITM Nifty Call Option with a strike price of Rs. 3100 at a premium of Rs. 141.55 and sells 1 OTM Nifty Call Option with a strike price of Rs. 3300 at a premium of Rs. 64. The Net Credit is Rs. 9.75. Strategy: Buy 2 ATM Call Options, Sell 1 ITM Call Option and Sell 1 OTM Call Option

Overview A Short Call Condor is very similar to a short butterfly strategy. The difference is that the two middle bought options have different strikes. The strategy is suitable in a volatile market. The Short Call Condor involves selling 1 ITM Call (lower strike), buying 1 ITM Call (lower middle), buying 1 OTM call (higher middle) and selling 1 OTM Call (higher strike). The resulting position is profitable if the stock/index shows very high volatility and there is a big move in the stock/ index. The maximum profits occur if the stock/index finishes on either side of the upper or lower strike prices at expiration. **When to Use:**When an investor believes that the underlying market will break out of a trading range but is not sure in which direction. **Reward:**Limited. The maximum profit of a short condor occurs when the underlying stock  or index is trading past the upper or lower strike prices. Break Even Point: Upper Break even Point=Highest Strike—Net Credit Lower Break even point=Lowest Strike+Net Credit Example Nifty is at 3600. Mr. XYZ expects high volatility in the Nifty and expects the market to break open significantly on any side. Mr. XYZ sells 1 ITM Nifty Call Options with a strike price of Rs. 3400 at a premium of Rs. 41.25, buys 1 ITM Nifty Call Option with a strike price of Rs. 3500 at a premium of Rs. 26, buys 1 OTM Nifty Call Option with a strike price of Rs. 3700 at a premium of Rs. 9.80 and sells 1 OTM Nifty Call Option with a strike price of Rs. 3800 at a premium of Rs. 6.00. The Net credit is of Rs. 11.45.

Overview Selling a Put is opposite of buying a Put. An investor buys Put when he is bearish on a stock. An investor Sells Put when he is bullish about the stock—i.e. he expects the stock price to rise or stay sideways at the minimum. When you sell a Put, you earn a premium ( from the buyer of the Put). You have sold someone the right to sell you the stock at the strike price. If the stock price increases beyond the strike price, the short put position will make a profit for the seller by the amount of the premium because the buyer will not exercise the Put option and the Put seller can retain the Premium (which is her/his maximum profit). But, if the stock price decreases below the strike price, by more than the amount of the premium, then the Put seller will lose money. The potential loss being unlimited (until the stock price falls to zero). **When to Use:**Investor is very bullish on the stock/index. The main idea is to make a short term income. **Risk:**Put Strike Price—Put Premium **Reward:**Limited to the amount of Premium received. **Breakeven:**Put Strike Price—Premium Example: Mr. XYZ is feeling bullish on Nifty when it is at 4191.10. He sells a Put option with a strike price of Rs. 4100 at a premium of Rs. 170.50 expiring on July 31. If the Nifty index stays above 4100, he will gain the amount of premium as the Put buyer won’t exercise his option. In case the Nifty falls below 4100, Put buyer will exercise the option and Mr. XYZ will start losing money. If the Nifty falls below 3929.50, which is the breakeven point, Mr.XYZ will lose the premium and more depending on the extent of the fall in Nifty. Analysis Selling Puts can lead to a regular income in a rising or range bound market. But it should be done carefully because the potential losses can be significant in case the stock price/index falls. This strategy can be considered as an income generating strategy. To learn more about Trading Strategies visit Upstox Knowledge Base.

Overview of a Short Strangle Strategy A Short Strangle is a slight modification to the Short Straddle. It tries to improve the profitability of the trade for the Seller of the options. This is done by widening the breakeven points. This requires much greater movement required in the underlying stock/index. In return, the Call and Put option can be worth exercising. This strategy involves the simultaneous selling of two options. A Short Strangle Strategy can be highly profitable if used correctly. It's all about the timing of the trades of the options. The first is a slightly out-of-the-money (OTM) put. The second is a slightly out-of-the-money (OTM) call. Both options should have the same underlying stock and expiration date. This typically means the net credit received by the seller is less as compared to a Short Straddle. This is due to the fact that both options are sold. However, the break even points are also widened. The underlying stock has to move significantly for the Call and the Put to be worth exercising. If the underlying stock does not show much of a movement, the seller of the Strangle gets to keep the Premium. **When to Use:**This options trading strategy is taken when the options investor thinks that the underlying stock will experience little volatility in the near term. **Risk:**Unlimited **Reward:**Limited to the premium received. Breakeven:

1. Upper Breakeven Point=Strike Price of Short Call + Net Premium Received
2. Lower Breakeven Point= Strike Price of Short Put—Net Premium Received

Here, we will jump into the calculations of how the traders of the world compute and use moving averages in their daily trading. However, let’s first see a few charts with these averages laid out. This is a beautiful daily chart of Axisbank with a 21 period EMA (exponential moving average). Do you see that upward trajectory and the fact that price came down to the blue line (that’s the EMA)?  It then continued its movement upward? This is BharatForge, it’s moving swiftly up and as we can see the 21 EMA proves to be crucial support when the market ‘dips’. It works pretty well right? Well, like almost everything in the market the moving averages have a good and a bad. Let us start with the SMA or the simple moving average. The Simple Moving Average You live in much easier times than the generation of traders before us. In the times before us traders used to plot a chart by hand, taking each day’s closing price and recording it in a diary. After they had enough data they would draw a line to ‘average’ the movement of the stock over a certain number of days. Today with the advantage of technology, our customers at Upstox can use their NEST trading software and obtain a chart with their desired moving average within a few clicks (shown at the end of this article). Lucky you? How To Calculate a Simple Moving Average To calculate a 21 day simple moving average, simply add the closing prices of the last 21 days and divide by 21. This of course gives us a single average point. When a new day is added then we have 2 points, and the calculation is done every time a new data set arises, eventually making a blue line you see in the charts above. If you were wondering why we call this a “moving” average and not just mean of prices it is because as new days are added, previous data sets are dropped to include the new data and the average is constantly ‘moving’. Timeframes The moving average is not restricted to only daily charts, they can be used on any timeframe and are useful for intraday traders as well as investors simply by changing the timeframe. For instance intraday traders may look to buy the cross over of the 10 period and 20 period average on the 10 20min timeframe while the investor may look for some buying pressure to arise at the touch of the 200 MA on the daily charts. The Birth of The EMA Now, If you think about it the simple moving averages gives the same ‘weight’ or importance to each new data point equally. Many traders asked themselves why older price points were given the same weightage as new price points in the simple moving average. Traders started to argue that the most recent development has the right to influence our averages more than the older data points. Thus, the EMA was born, it gave more importance to recent data and the most popular variant is called the Exponential Moving Average (EMA). How the EMA is calculated Current EMA= ((Price(current) – previous EMA)) X multiplier) + previous EMA. The most important factor is the smoothing constant that = 2/(1+N) where N = the number of days. For example the smoothening for a 10-day EMA = 2/( 10+1) = 18.8 That means a 10 day EMA gives 18.8% weightage to the most recent data. The same way a 20 day EMA will give about 9.5% weightage to the most recent data. Some points to remember The EMAs and SMAs are not efficient indicators, they provide a way to check what the masses are looking at and may give us an indication for trend changes. The key points to remember when using the moving averages are:Couple it with price action It is vital to use averages with strong price action methodologies which have shown results independently. The averages work well as a confirmatory indicator rather than a leading indicator. Use Money Management Unfortunately, a lot of traders concentrate too much time on price discovery methods and not as much time on their risk management. Please make sure you are not leveraging too much by risking no more than 0.5% or 1% per trade for beginners and slightly more for the more experienced. Averages + Trading Methodology = Win At the end of the day you are basically looking at the average movement of price, use a tested methodology to trade the averages. Discipline and methodology are your main ingredients to successful trading. How To Setup MA on Upstox Nest Platform

• Login to Nest and select the scrip you want, we are looking at BankNifty here
• Right click and click on intraday chart
• Right click on the chart that has appeared and hover over ‘Indicators’ and then to ‘simple moving average’. Select the timeperiod calculations and hit ‘apply’!
• You will now have the chart with the SMA, shown in blue

Now that we have talked about the pitfalls, we will be exploring some ideas of using the averages for our trading!

Used as a tool to generate overbought and oversold trading signals, the Stochastic Oscillator typically tracks the speed and momentum of the market. Trading ranges of over 80 are considered in the overbought range and anything under 20 is considered oversold. A Stochastic Oscillator is a momentum-based tool used by traders to compare the current closing price of a financial instrument over a period.  The trading tool was developed by Dr. George Lane in the 1950s to be used in the technical analysis of securities. The reading in Stochastic Oscillator ranges between 0 to 100 where 0 is the lowest point and 100 indicates the highest point in the designated time. The oscillator’s sensitivity to the market movements can be reduced by adjusting the time or taking a moving average of the result. Used as a tool to generate overbought and oversold trading signals, the Stochastic Oscillator typically tracks the speed and momentum of the market. It does not consider price and volume. Further, it may also be used to predict market reversal points. Trading ranges of over 80 are considered in the overbought range and anything under 20 is considered oversold. The charting of the Stochastic Oscillator consists of two lines – one representing the actual value of the oscillator in every session (%k) and the second reflecting its moving average over three days (%d).  When the %k line remains above the %d line, it is seen as a bullish signal. Similarly, when the %k line crosses below the %d line, it is an indicator of a bearish trend.  The intersection of these two lines is seen as a signal that a reversal may be coming up as it indicates a large shift in momentum from day to day. However, it must be noted that the trading ranges in a Stochastic Oscillator may not always be indicative of a reversal. Strong trends in the overbought and oversold range can continue for an extended period. Hence, traders should be alert to changes in the stochastic oscillator for hints of a possible shift in the future trend.  The divergence between the stochastic oscillator and tending price action can be key indicators for a possible reversal. Stochastic Oscillator Formula The Stochastic Oscillator can be calculated using the following formula:**%K for each day: ** %k = (Closing Price - Lowest Low) / (Highest High - Lowest Low) x 100

**3-day Simple Moving Average of %k (%d):**

%d = (Sum of %k of last 3 days)/3 Like every other trading tool, Stochastic Oscillator has its own set of limitations. It tends to generate false signals, especially during volatile trading conditions. Hence, traders need to confirm the trading signals generated by Stochastic Oscillators with indications from other technical indicators. To counter the Stochastic Oscillator’s tendency to generate false signals, some traders use more extreme points in the range to indicate overbought or oversold conditions in a market. Instead of using readings above 80 as a signal for an overbought trend, they consider readings above 85. Similarly, only readings of 15 or below are seen as signals of oversold conditions during a bearish run. While the technique does reduce the chances of false signals, in some cases, it can also result in the trader missing trading opportunities. Traders should use the Stochastic Oscillator along with other technical indicators to avoid false signals.

Technical Analysis employs historical stock statistics, typically price and volume data, to predict future prices. In simple terms, a technical analyst identifies patterns in a stock's data, assumes that the pattern will repeat in the future, and places trades accordingly. Technical analysts frequently use technical indicators to inform their trading decisions. Popular indicators include Moving Averages, MACD, RSI, etc. The fundamental assumption is that a stock's price already incorporates all available information and that it is either trending up, down, or sideways. Technical analysts believe that prices move in patterns, and chart analysis is a common tool in their decision-making process. For instance, if a trader observes (usually through a chart) that in the last 25 instances, every time stock XYZ increased by 1%, it was followed by a downward trend, they might identify a "zig-zag" pattern. The trader now has a signal: the next time the stock rises by 1%, they plan to sell. Traders explore various patterns to guide their trading decisions. To begin with Technical Analysis, research popular technical indicators and ensure your trading broker provides charting tools as part of your trading software.

A security that gains price or increases in price during the course of a single trading day is called a gainer. A gainer is a security that has a higher price at the close of the market rather than its price at the open. When the stock market indexes go up, it is likely that there will be more gainers than losers in the market.

A security that loses value during the course of a single trading day is called a loser. A loser is a secutiry with a high price at the open or at the start of a trading day versus its price at the end of the trading day. When the stock market indexes slump down across the board, it is likely that there will be more losers than gainers in the market.

• Trading is characteristically associated with buying and selling stocks, commodities, currencies, bonds or other financial instruments over shorter periods. This is primarily to make profits from the short-term movements in prices of these securities. So, traders essentially take advantage of volatility.
• Assessing good trading opportunities typically makes use of trading systems or chart-based techniques to detect short-term patterns in prices. This is called technical analysis. It involves more frequent buying and selling of stocks or other financial instruments.

Trading is different from investing. To know more, click here.

Just like a traditional bank account holds your salary and savings, a trading account holds cash and securities that is usually held at a financial institute such as a broker. A trading account with an online discount broker like Upstox offers the trader a way to use their own trading strategies and place trades independently to make profits. Moreover, with the low brokerage cost,

Trading indicators or Market Indicators are a group of technical indicators that traders use in order to predict the direction that financial indexes might take. Most technical analysis indicators are useful in anticipating changes in prices, spotting trends in the stock markets or of any particular traded asset. Price patterns can also be predicted with the help of these trading indicators.

In India, many traders who trade on the NSE, BSE and MCX use trading indicators to make their trading decisions. You must have seen a price chart--it basically plots where price has been in the last few hours, few days, weeks and even months. Now with the help of some calculations we can derive certain trading indicators to help us make a better decision when trading. It’s important to remember that indicators are a derivative of price, meaning they derive their values from price action. Dividing these indicators into two distinct parts makes it easy to understand their functions. They are ‘Overlay’ indicators which are overlaid right on top of a price chart and plain o’l indicators that are placed below the price chart. Price Chart This is a Chart of Larsen and Toubro without any indicators, it displays only price. Overlay Indicator This is the same chart with an ‘overlay’ indicator called the moving average, that red line running across the price chart measures the average price over a certain period of time. We’ll talk in more detail about moving averages in a separate dedicated article. Indicators Notice the ‘extra’ chart below the price chart of Larsen & Toubro? That is an indicator called the MACD (pronounced ‘MAC’ ‘dee’ or simply the MACD) and it measures momentum. It uses moving averages to use both of best worlds, momentum and trend following. Broad Market Indicators These kind of indicators are not placed on price charts. Broad market indicators give us vital information about market depth and broad range movement. If you ever tuned into your favourite financial news channels you have probably come across the market breadth ‘Advance – Decline’ ratio/line. This indicators basically tells us how many stocks are positive V/s companies which are trading in negative territory all calculated over current price subtracted from the previous day’s close. This chart measured the Advance to decline ratio on the broad market at 1pm on 8th May 2014. We can see that the market is turning negative. We have 682 declining stocks and 611 stocks that are higher than yesterday’s close. Can you guess how many points nifty would be up with such figures? Yes that’s right – The markets are in doldrums since the number of stocks advancing and declining is roughly the same (a difference of 70 is not much) – they are in a no movement zone. Nifty was up by a mere 0.80 points (that is not even 1 point) or +0.01%. Broad market indicators give us vital information about the broader markets and can be seen as an overview of what markets are generally doing. The Pros and Cons of using Indicators The Pros of using indicators

• Since many people using indicators it is likely a good starting point to learn technical analysis
• Beginners find it difficult to judge trend, overlay indicators provide an easy to follow way to follow the trend without thinking too much
• Most indicators derive their values from PRICE which is the leading indicator to anything, it reflects the exact demand and supply live.
• Charting is inexpensive, for traders who have accounts with us at RKSV – our NEST terminal allows free access to charting.
• Charts provide a wealth of information, any news out there in the world will reflect in price immediately, that data can be used directly to help us trade & invest better.

The Cons of using indicators

• Indicators are usually lagging, even if we use leading indicators they will still always precede price movement. Indicators are usually ‘too late’ to the party.
• Indicators are probably the most used technique in the world but professional traders usually concentrate on price action trading because they consider technical indicators to be lagging and not provide a meaningful edge.

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A trading platform in terms of finance is a computer software through which you as an investor or a trader can open, close and manage your positions in the market. You can use trading platforms like Upstox Pro Web and Upstox Pro Mobile to keep tabs on the securities that you are interested in. Also, you can maintain your trading portfolio on easy-to-use trading platforms like the Upstox Pro Web and Upstox Pro Mobile.

A trading strategy is a plan that is put into action in order to get profits by either trading in the direction of the market or against the market. Trading strategies that are researched upon and chalked out in detail help in achieving profits because they are consistent, objective, easily quantifiable and verifiable based on pre-existing data.

A brokerage firm or a traditional broker is an institute which enables the purchasing and selling of securities in the financial marketplace between a buyer and seller. A traditional broker takes a commission for making it possible for the buyer and seller to conduct a successful transaction.

Transfer of shares is when the title of a share is transferred from one person to another. The company whose shares are being transferred from one person to another should be made aware before the transfer of the title of shares is pronounced as legal. Once the company's register reflects the change in the of the legal title, only then is the transfer is in effect and complete.

Wealth management is the practice of using personal investment ideas, professional financial advise and accounting and tax services, retirement planning and asset planning in order to build up one's net worth.

STT (Securities Transaction Tax) STT or Securities Transaction Tax, is a tax levied on securities trades (not on commodities or currency trades). Different STT rates are applicable for Equity (cash) and Futures and Options (F&O) transactions. STT is levied on trades on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and other recognized stock exchanges. For commodities, CTT (Commodities Transaction Tax) is levied. Equity If the trade is a equity delivery trade, then a tax of 0.1% on the turnover is levied on both the buy side and sell sides of each trade. However, if the trade is squared off (closed) within the same trading day, meaning it is an intra-day transaction, then the STT rate applicable is 0.025% on the sell-side trade(s) only. Eg: Assuming a trader buys 500 shares of Reliance Stock at Rs. 800 and sells it at Rs. 810. Since he sold it within the same day, a STT charge of STT=0.025% (STT rate) X 810 (selling price) X 500 (shares)= Rs. 101.25 would be levied on the transaction. Futures and Options The STT rate applicable for Equity and Index Futures trades is set at 0.01 % on Futures sell side turnover. The STT rate applicable for Equity and Index trades is set at 0.01% on Futures sell side turnover. E.g: Assuming a trader buys 10 lots of NIFTY Futures at Rs. 6000 and sells it at Rs. 6010. Since the lot size of NIFTY is 50, a STT charge of STT= 0.01% (STT rate) X 8700 (selling price) X 10 (lots) X 25 (lot size of NIFTY) = Rs. 217.50 would be levied on the transaction.