OPTION TRADING

 

WHAT HAPPENS IN CASE MY SHARES ARE SHORT SOLD?

At any point of time when the shares are short sold and the same are not delivered to the exchange, the shares go in for auction. Here, the shares are purchased on behalf of the client in the auction market and delivered to the actual buyer. To carry on the auction procedure, 150% of the amount shall be blocked in your account. This amount will be reversed once the actual auction charges are debited from your account.

You also have the option to transfer shares from some other demat account to your demat account with Kotak Securities in order to adjust for the shares short-sold. However, the shares should be transferred one day prior to the pay-in date before 3.30 p.m.

WHAT ARE THE VARIOUS TYPES OF THE RISKS ONCE I START TRADING?

WHAT ARE ADVANCES AND DECLINES?

• Advances and declines give you an indication of how the overall market has performed. You get a good overview of the general market direction. As the name suggest 'advances' inform you how the market has progressed. In contrast, 'declines' signal if the market has not performed as per expectations. The Advance-Decline ratio is a technical analysis tool that indicates market movement. The ratio is calculated using the formula:

• Generally, it is seen that in bullish markets, the number of stocks that advance is more than the ones that declined; the converse holds true in a bearish market. The indicator – market breadth – is used to gauge the number of stocks advancing and declining for the day.
• 'Remains unchanged' is a term used if the market scenario shows no advancement or decline compared to the earlier day.
• Advances and declines are calculated from the previous day’s closing results. However, a market with an advance-decline ratio that is significantly down or up may have a hard time reversing out of that direction the next day.

CAN I TRADE WHEN MARKETS ARE SHUT?

No, you cannot trade when the markets are shut but you can place orders . Such orders are called After-Market Orders. AMO is for those customers who are busy during market hours but wish to participate. When you place an AMO, you have to keep in mind the closing price of the stock. You can choose a price which is 5% higher or lower than the closing price. That said, your order will be processed as soon as the market opens the next day at the opening price if it falls within this 5% band. 

AMOs come handy when you need time to plan your orders after conducting research. During market hours, you need to actively track the price as it is constantly fluctuating. This is not the case for AMOs.

WHAT ARE STOCK RECOMMENDATIONS?

You cannot invest without conducting research. Often, many analysts and brokerage firms undertake their own stock market research keeping in mind the economy, industries, currency valuation, and so on. They often use public data from institutions like the Reserve Bank of India and speak to experts as part of their research. This is not easily possible for retail investors. As a result, findings of such research are extensively followed by investors, which also give a buy or sell recommendation for specific stocks.

CAN I OWN MORE THAN ONE DEMAT OR TRADING ACCOUNT?

Yes, you can own more than one demat and trading account. However, these may be with multiple brokers and firms. While you have the freedom to open many accounts, it is not a viable option. This is because you would have to pay maintenance charges for each of these accounts, which may turn out to be costly affair in the long run.

HOW CAN YOU QUALIFY THE MARKET AS BULL OR BEAR?

Bull and bear markets signify relatively long-term movements of significant proportion. Hence, these runs can be gauged only when the market has been moving in its current direction (by about 20% of its value) for a sustained period. One does not consider small, short-term movements that last for a few days, as they may only indicate corrections or short-lived movements.

WHAT IS BOTTOMING OUT?

Stock prices move in trends – an upward and a lower trend. During periods of bear markets, prices keep falling. However, there will come a time when the market starts to look cheap. This is when it starts to rise again as people start buying slowly. This phenomenon when the market free-fall ends and the rise begins is called bottoming out. 

Similarly, on the higher end, there will come a point when too much buying has made the stock costly. Traders then start selling in droves to book profits. So, the price does not rise beyond this level. This is called 'peaking'.

WHAT ARE THE VARIOUS TYPES OF THE RISKS ONCE I START TRADING?

This is the risk of investing in the stock market in general. It refers to a chance that a security’s value might decline. Although a particular company may be doing poorly, the value of its stock can go up because the stock market value is collectively going up. Conversely, your company may be doing very well, but the value of the stock might drop because of negative factors like inflation, rising interest rates, political instability etc that are effecting the whole market. All stocks are affected by market risk.

INDUSTRY RISK

This is a risk that affects all companies in a particular industry. This is because the companies in an industry may work in a similar fashion. This exposes them to certain kinds of risk unique to the industry.

REGULATORY RISK

Virtually every company is subject to some sort of regulation. It refers to the risk that the government will pass new laws or implement new regulations that will dramatically affect a business.

BUSINESS RISK

These are the risks unique to an individual company. It refers to the uncertainty regarding the organization’s ability to conduct its business. Products, strategies, management, labor force, market share, etc. are among the key factors investors consider in evaluating the value of a specific company.

WHAT IS BANKRUPTCY?

Bankruptcy is a legal mechanism that allows creditors to assume control of a firm when it can no longer meet its financial obligations. Both stocks and bondholders fear bankruptcy. This is because you are unlikely to get all your money back. Generally, the firm's assets are sold in order to pay off creditors to the largest extent possible. However, in case the liabilities exceed the value of the company’s assets, even creditors may be at a loss.