TYPES OF TRANSACTION -PART II

WELL LAST TIME WE SAW HOW INTRA-DAY TRADING CAN BE DONE AND HOW MONEY CAN BE EARNED FROM IT.BUT IT LEFT US WITH ONE BIG DOUBT.WHAT HAPPENS WHEN THE SHARE PRICE FALLS?AM I AT A LOSS?CAN I GET OUT OF THIS?
WELL ANSWER TO ABOVE QUESTIONS WILL HELP US UNDERSTAND ANOTHER TYPE OF TRANSACTION TERMED AS SHORT TERM DELIVERY.WE WILL GET TO IT LATER ,BUT FIRST THE DOUBTS.

TO MAKE IT EASIER LETS CONTINUE WITH THE SAME EXAMPLE BUT WITH A SLIGHTLY DIFFERENT END TO THE STORY. HERE LETS ASSUME THAT PRICE OF THE SHARE STARTS DWINDLING , SO YOU HAVE A LOSS AT HAND. SAY YOU BOUGHT 1000 SHARES AT Rs 50.80 AND THE MARKET IS GOING DOWNWARDS. WITH EVERY 10 PAISE FALL IN PRICE YOU ARE LOOSING 0.1 * 1000 = Rs 100/-. HOW TO PREVENT THIS LOSS?
JUST HAS ALL DEVICES HAVE A SAFETY SWITCH, SHARE TRADING TO HAS A SAFETY SWITCH OR AN EMERGENCY EXIT.THERE IS A PROVISION OF SETTING UP A CUT-OFF VALUE WHILE SELLING YOUR SHARES. SAY I PUT A CUT-OFF OF Rs 50.70 THEN IT IMPLIES THAT MY SHARES WILL BE AUTOMATICALLY SOLD OFF WHENEVER PRICE TOUCHES Rs 50.70 LIMIT AND NOT A PENNY LESS.THUS I CAN LIMIT MY LOSS TO (50.80-50.70) * 1000 = Rs 100/- ONLY.

IF NOW YOU HAVE UNDERSTOOD THE CUT-OFF CONCEPT WELL THEN YOU MIGHT HAVE REALIZED THAT IT CAN BE USED WHEN IN PROFIT TOO. THUS IF I SET A LIMIT OF Rs 51.80 THEN IT IMPLIES THAT MY SHARES WILL BE SOLD OFF AS SOON AS THEY REACH A VALUE OF Rs 51.80,THUS YIELDING ME A PROFIT.
HERE I NEED NOT KEEP AN EYE ON THE PROCEEDINGS FOR THE WHOLE DAY AND MERELY SETTING THE LIMITS WHILE KEEPING MY SHARES FOR SALE INSURES THAT MY TRANSACTION WILL BE THE SAFEST FOR ME.

NOW THERE CAN BE AN INTERESTING SITUATION IN WHICH THE SHARE PRICES MAY NOT TOUCH EITHER OF THE CUT-OFF LIMITS SET BY ME (LIKE RS 50.70 AND RS51.80 IN OUR EXAMPLE).
WHAT TO DO IN SUCH A SITUATION? THE ANSWER TO IT IS SHORT TERM DELIVERY WHICH WILL BE THE NEXT IN LINE OF OUR TYPES OF TRANSACTION.

YOU MIGHT SAY THAT ALL WE ARE TAKING ABOUT IS SELLING AND NOT MUCH ABOUT BUYING.THEN TO MAKE THE PICTURE CLEAR I WOULD LIKE TO MENTION THAT YOU CAN SET A CUT-OFF FOR BUYING TOO .THE OTHER OPTION CAN BE BUYING AT LAST TRADING PRICE(LTP) OR MARKET PRICE.SETTING CUT-OFF WHILE BUYING HELPS YOU MAKE USE OF THE SWINGING SHARE PRICES AND HELP YOU BUY SHARES AT A LOWER PRICE (SO YOU GET MORE SHARES IN SAME AMOUNT).

WHAT ARE THE TYPES OF TRANSACTIONS?

EVEN THOUGH EVERYTHING HERE IS ABOUT BUYING AND SELLING IT TOO INVOLVES SOME DEFINITE RULES AND REGULATIONS

1.INTRA-DAY:
JUST IN CASE YOU BUY A SHARE AND SELL IT ON THAT VERY DAY THEN IT BECOMES AN INTRA-DAY TRANSACTION.
LETS CONSIDER AN EASY EXAMPLE.SAY YOU BUY 1000 SHARES OF A COMPANY BY THE NAME XYZ LTD AT A VALUE OF Rs 50.40 EACH.AS THE DAY PROGRESSES THE VALUE SWINGS UPWARDS ,DOWNWARDS AND FINALLY SETTLES ON A FIXED PRICE AT THE END OF THE DAY.IF THE VALUE OF THE SHARE CLIMBS TO Rs 51.80 AND YOU SELL IT THEN YOU WILL EARN (51.80-50.40) * 1000 = Rs 1,400/-.
ITS INTERESTING TO NOTE THAT HERE YOU DON'T ACTUALLY PAY FOR BUYING THE SHARES (REMEMBER T+2) AND END UP EARNING Rs 1400/-.
THERE'S A BIT OF DAMPER THOUGH,YOU NEED TO SHELL OUT 30% INCOME TAX AND THE BROKERAGE (SAY 2%) FROM THIS AMOUNT.STILL YOU EARN
(1400 - 32%) = Rs 952/-.
ABOVE TRANSACTION SOUNDS GREAT ISN'T IT?ZERO INVESTMENT,NO PHYSICAL EFFORT AND QUICK MONEY TO BOOT.BUT THINGS AREN'T THAT EASY.
FIRST AND FOREMOST FOR CARRYING OUT AN INTRA-DAY TRANSACTION YOU NEED TO KEEP SOME AMOUNT AS DEPOSIT WITH YOUR BROKER.
SECONDLY YOU NEED TO HAVE AN INSTINCT ABOUT HOW THE PRICES ARE GOING TO FARE AND SOME RESEARCH SHOULD GO INTO IT.
MOST IMPORTANTLY WHAT IF THE PRICES SLIDE DOWN RATHER THAN MOVING UP?
AM I AT A LOSS?
WELL THINK OVER IT ,I WILL SOLVE THIS QUERY OF YOURS SOON.

LETS CONTINUE

WELL HI THERE.THERES BEEN A GAP OF ALMOST A FORNIGHT BETWEEN TWO POSTS AND HOPE U MIGHT HAVE APPLIED FOR PAN-CARD TILL NOW.
WELL LETS ASSUME U HAVE GOT A PAN CARD AND EVEN OPENED A DEMAT ACCOUNT AT YOUR BROKER (CONFIRMED WHETHER HE IS SEBI REGISTERED?).

NOW THERE ARE SOME OPTIONS WHEN IT COMES TO YOUR DEMAT ACCOUNT, A DIAL-IN ACCOUNT,ONLINE ACCOUNT ETC.YOUR BROKER WILL PROVIDE YOU THE OPTIONS AND SELECT THE ONE YOU ARE COMFORTABLE WITH.

LETS TRY AND UNDERSTAND WHAT TRANSACTIONS TAKE PLACE IN THE STOCK EXCHANGE.
BASICALLY ITS ALL ABOUT BUYING WHEN CHEAPER AND SELLING WHEN DEARER.

LETS BEGIN WITH THE PREREQUISITES

1. PAYMENTS ARE TO BE DONE ONLY THROUGH CHEQUES,AND THAT TOO FROM YOUR SAVING ACCOUNT ONLY.
2.T+2:
HERE T STANDS FOR TRANSACTION DAY ,THAT MEANS T+2 STANDS FOR TWO DAYS AFTER TRANSACTION.ALL YOUR PAYMENTS NEED TO BE DONE WITHIN T+2.
FOR EG IF YOU BUY SHARES ON MONDAY THEN YOU SHOULD PAY FOR THE SAME WITHIN TWO WORKING DAYS (SAY WEDNESDAY IN CASE OF NO HOLIDAYS IN BETWEEN).SIMILARLY THE SHARES WILL APPEAR IN YOUR DEMAT ACCOUNT WITHIN T+2.
CONVERSELY IF YOU SELL YOUR SHARES YOU ARE PAID WITHIN T+2 AND SHARES DEDUCTED IN THE SAME PERIOD.IT IS ESSENTIAL TO NOTE THAT WHEN I SAY "YOU ARE PAID" IT MEANS THAT MONEY IS DEPOSITED IN YOUR DEMAT ACCOUNT BALANCE.
#### ASK YOU BROKER ABOUT HIS INSTITUTION'S TIE-UP WITH VARIOUS BANKS FOR ECS(ELECTRONIC CLEARING) .HOLDING A SAVING ACCOUNT IN SUCH BANKS HELP YOU MAINTAIN YOUR ACCOUNT FROM HOME.####


3.CONTRACT NOTE:
I MIGHT HAVE TOLD YOU ABOUT THIS BEFORE BUT NO HARM REPEATING.
IT IS A LEGAL DOCUMENT WHICH KEEPS A RECORD OF ALL THE TRANSACTIONS BETWEEN YOU AND YOUR BROKER.ANY TRANSACTION IS INCOMPLETE (EVEN INVALID) WITHOUT THE CONTRACT NOTE.
IT IS IMPORTANT TO NOTE THAT SEBI RECOGNIZES THE CONTRACT NOTES AND IN CASE OF ANY FORGERY IT IS A VITAL DOCUMENT TO GET YOU INVESTMENT BACK SAFELY.

HOW TO GET A PANCARD AND START A DEMAT ACCOUNT

AS WE DISCUSSED EARLIER IT IS QUITE ESSENTIAL TO HOLD A PAN-CARD NOW-A-DAYS. THE ISSUE IS HOW TO GET ONE?
ITS ONE OF THE EASIEST THING TO DO.

GO TO ANY FINANCIAL INSTITUTION (UTI, KARVY,ETC ARE PERMITTED BY THE GOVERNMENT FOR THIS PURPOSE).ASK FOR A PAN APPLICATION FORM(Rs 5/- ONLY).FILL THE FORM AND ATTACH PROOFS OF RESIDENTIAL ADDRESS AND OF YOUR BIRTH DATE.PAY THE FEES (Rs 67/- ONLY) AND SUBMIT THE APPLICATION.YOUR PAN-CARD IS SENT TO YOUR ADDRESS WITHIN 15-20 DAYS.
(THE ABOVE FEES ARE THE ONES APPLICABLE IN MAHARASHTRA,THEY MAY VARY A BIT AT OTHER PLACES).

ONCE YOU HAVE A PAN-CARD YOU ARE ALL SET TO OPEN A DEMAT ACCOUNT.
DEMAT ACCOUNT CAN BE OPENED AT ANY BROKER JUST MAKE SURE THAT HE IS A SEBI REGISTERED BROKER.

SEBI STANDS FOR SECURITIES & EXCHANGE BOARD OF INDIA AND IS THE MARKET WATCHDOG.IT KEEPS A STRICT VIGIL OVER THE MARKET ACTIVITIES AND SAFEGUARDS THE INVESTORS.

INDIA BULLS,SHAREKHAN,KARVY,RELIANCE,LKP,ANAND RATHI ARE SOME OF INDIA'S LEADING BROKERS.

DEMAT ACCOUNT CAN BE OPENED BY PAYING THE BROKER HIS ANNUAL FEES,PROVIDING HIM YOU SAVING ACCOUNT PASSBOOK'S LATEST UPDATE AND YOUR IDENTITY PROOFS.WE WILL DU ELY SEE HOW THE DEMAT ACCOUNT WORKS & VERY SOON WE WILL PERFORM OUR FIRST TRANSACTION TOO.

LETS KEEP CHUGGING

WELL THE BUDGET HAS BEEN DECLARED AND THERE HAVE BEEN MANY ADVERSE AND SUPPORTIVE REACTIONS TOWARDS IT.UNFORTUNATELY WE HAVEN'T LEARNT ENOUGH TO MAKE USE OF THE BUDGET IN SHARE TRADING.
BUT STILL IF YOU HAVE KEPT SOME PAPER CUTTINGS OF THE POST BUDGET PERIOD THEN WE WILL CERTAINLY MAKE USE OF IT IN NEAR FUTURE.

TILL THEN LETS CONTINUE TO UNDERSTAND SOME MORE TERMS.I THINK TILL NOW WE HAVE COVERED SHARE MARKET,BROKERS,BSE,NSE,SENSEX AND NIFTY ISN'T IT?
NOW SOME MORE OF THEM

1.BROKERAGE:
THIS IS THE AMOUNT YOU PAY THE BROKER FOR PERFORMING THE TRANSACTION ON YOUR BEHALF.IN OTHER WORDS ITS THE BROKER'S COMMISSION.
IT VARIES FROM BROKER TO BROKER AND ALSO WITH THE TYPE OF TRANSACTION.NORMALLY IT IS SOME PERCENTAGE(APPROX 0.1 TO 2%) OF THE TRANSACTION AMOUNT

2.DEMAT:
DEMAT IS JUST THE SHORT FORM FOR DE MATERIALISATION.JUST TO MAKE THINGS SIMPLE IT IS A VIRTUAL RECORD OF A PHYSICAL ENTITY.
EARLIER SHARE CERTIFICATES WERE PHYSICALLY HANDED OUT,THEY WERE PRONE TO THEFT,LOSS OR DAMAGE. SO NOW A DAYS THEY JUST APPEAR IN YOUR RECORDS (i:e IN YOUR DEMAT PASS BOOK OR ON COMPUTER), JUST LIKE YOUR BANK PASS-BOOK SHOWS YOUR SAVINGS EVEN THOUGH YOU DON'T SEE THEM PHYSICALLY.
DEMAT ACCOUNT CAN BE OPENED AT ANY BROKER,SOME BANKS TOO OFFER THE FACILITY.

3.PANCARD:
PAN STANDS FOR PERMANENT ACCOUNT NUMBER,AN IMPORTANT DOCUMENT AFTER THE PASSWORD TO PROVE THAT YOU ARE AN INDIAN.
PAN IS REQUIRED FOR EVERY MAJOR FINANCIAL TRANSACTION NOWADAYS.
PAN CAN BE OBTAINED FROM MANY FINANCIAL INSTITUTES (UTI,KARVY,etc) ON JUST FILLING UP A FORM AND PROVIDING ADDRESS AND IDENTITY PROOFS.
PAN CAN BE OBTAINED BY ANY INDIAN CITIZEN ABOVE 18 YEARS WITH OR WITHOUT AN INCOME SOURCE.

#### IT IS MANDATORY TO HAVE A PANCARD TO OPEN A DEMAT ACCOUNT####