SHORT TERM TRADING

LAST TIME I HAD JUST GIVEN YOU A HINT OF THE SECOND TYPE OF TRANSACTION i:e SHORT TERM TRADING.IT GIVES YOU AN OPTION OF GETTING OUT OF A STICKY SITUATION IN INTRA-DAY TRADING.

SHORT TERM TRADING INVOLVES BUYING SHARES AND SELLING THEM WITHIN A SHORT TERM.THIS SO CALLED SHORT TERM CAN BE FROM 24 HOURS TO A WHOLE YEAR FROM THE TIME YOU BUY SHARES.FOR AN EXAMPLE SAY I BUY SHARES TODAY AND SELL IT TOMMOROW OR ON ANY DAY BEFORE THIS VERY DAY OF YEAR 2008 THEN IT IS TERMED AS A SHORT TERM TRADING OR SHORT TERM DELIVERY.(DELIVERY BECAUSE YOU ACTUALLY ACCEPT THE SHARES ,UNLIKE IN INTRA-DAY).

LETS JUST TRY TO GO A BIT DEEPER AND FIND OUT WHAT SHORT TERM DELIVERY REALLY IMPLIES FOR A SMALL INVESTOR LIKE YOU AND ME.
CONTINUING WITH OUR PRIOR EXAMPLE,LETS SAY YOU BUY 100 SHARES OF ANY COMPANY AT Rs 50.00 EACH.YOU DON'T FIND SELLING THEM PROFITABLE ENOUGH FOR SELLING ON THAT VERY DAY AND SO YOU ACCEPT TO BUY THEM.
NOW WHAT DOES THAT IMPLY?

1.FIRST AND FOREMOST,YOU NEED TO PAY FOR YOUR SHARES(Rs 100*50 = 5000/- + BROKERAGE , IN THIS CASE) WITHIN T+ 2.

2.YOU CAN SELL THESE SHARES ANYTIME THE NEXT DAY SEEKING FAVOURABLE MARKET CONDITIONS.

3.JUST 24 HOURS DEDUCT THE INCOME TAX ON THIS TYPE OF EARNING TO MERELY 10%, AS AGAINST 30% ON INTRA-DAY.

4.SAY JUST IN CASE YOU KEEP THESE SHARES FOR A LONGER PERIOD THEN YOU MIGHT EARN DIVIDEND AND BONUS FROM THE COMPANY.

WHAT ARE DIVIDEND AND BONUS?

I)DIVIDEND : IT IS THE PERCENTAGE OF PROFIT WHICH THE COMPANY SHARES WITH ITS INVESTORS.
IT IS SOME PERCENTAGE OF THE VALUE OF SHARES YOU HOLD.HOLDING THE SHARE WHEN THE COMPANY DECLARES DIVIDEND MAKES YOU LIABLE TO BE PAID THE DIVIDEND,SO YOU MAY NOT HOLD THE SHARES FOR THE WHOLE YEAR AND STILL EARN DIVIDEND IF YOU HAVE THE SHARES AT THE RIGHT TIME.THIS EVEN RESULTS IN INCREASE IN SHARE PRICES AS THE DIVIDEND DECLARATION DATE GETS NEAR.

II) BONUS : SOMETIMES THE COMPANY PAYS THE INVESTOR FOR HIS LOYALTY BY GIVE FREE SHARES PROPORTIONATE TO HIS INVESTMENT.
THUS YOU MIGHT GET ONE SHARE AS BONUS FOR EVERY SHARE YOU HOLD.THIS ENDS UP EARNING YOU DOUBLE THE NUMBER OF YOUR SHARES,THUS GIVING YOU CENT PERCENT PROFIT.

BONUS AND DIVIDEND ARE AT THE SOLE DISCRETION OF THE COMPANY, AND INVESTOR CANNOT CLAIM IT IF THE COMPANY DENIES THE SAME.
IT MUST BE REMEMBERED THAT BONUS AND DIVIDEND AREN'T ALL THAT IMPORTANT SOURCES OF INCOME IN SHARES.
YOU DON'T EARN MONEY UNTIL YOU SELL SHARES.

NEXT TIME WE WILL SEE THE MOST CONSERVATIVE WAY OF EARNING MONEY CALLED LONG TERM DELIVERY.