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).