Monday, May 28, 2012

What are the advantages and disadvantages of Online Trading?


Due to the problems that arose during paper shares, there was a need of a system that would make share transfer, buying/selling of shares, etc. an easier affair.
Therefore in 1996, the Indian parliament passed the Derivatives act, which allowed online transaction of shares, thus making it much easier for the broker and investor.
In the new online Trading system, an investor must open a demat account with one of the Stock Brokers to start trading online.
A demat account is a must for an investor to trade online.
Mentioned below are some of the advantages of trading online:
1)            Easier and convenient way to own shares
2)            Immediate transfer
3)            Zero stamp duty on transfer of shares
4)            Safer than paper shares, e.g., fake signatures, delay, thefts, etc.
5)            Lesser paperwork for transfer of securities
6)            Less transaction cost
7)            No “odd” problems. Even a single share can be sold.
8)            DP registers a change in address with all companies. No need for the investor to contact the companies immediately.
9)            DP transmission of securities, thus eliminating the need of notifying the companies.
10)          Automatic credit in demat accounts
11)          Both equity and debt instruments can be held by a demat account

The depository system aids in reducing the expenditure of new issues due to lesser printing and distribution costs. It increases the efficiency of the registrars and transfer agents and the secretarial department of a company. It provides better facilities for communication and timely service to shareholders and investors.

The disadvantages of online trading are mentioned below:
1)            Investors, who are trading for the first time, go with the flow and get immersed in technology and actually temporarily forget that they are actually using their real money. 
2)            There is no relationship that of a mentor between a professional broker and an online trading account holder, thus leaving the investor on his own to make choices of the right shares.
3)            Users who are not familiar with the ins and outs of the basics of brokerage software can make mistakes which can prove to be a costly affair.
4)            This is like any other financial strategy, where your commitment to online trading takes research and dedication to make sure by yourself that everything is up to par. You have to take time out to do your own research where you will have to overcome a great learning curve to make some money from online trading a possibility.

Online share trading in India, open demat account for stock market

Friday, May 25, 2012

Equity and Equity Investments in India


In accounting and finance, Equity means the residual claim or interest of the junior level of investors in assets, after all the liabilities have been paid for.
If liability is more than the amount of assets, it becomes negative equity.
In the context of accounting, shareholder’s equity (or stockholder’s equity, shareholder’s funds, shareholder’s capital or any such similar terms) is represented by the remaining interest in assets of a company which is spread amongst individual shareholders of common or the preferred stock.
In the beginning of a business, the owners invest some funding into the business to the finance operations. This forms a liability on the business in the form of a capital as the business becomes a separate entity from its owners. Businesses can also be considered, for accounting purposes, sums of liabilities and assets; thus this is the accounting equation.

After the liabilities have been accounted for any positive remainder, it deems the owner’s interest in the business. This definition is helpful for understanding the liquidation process in case bankruptcy occurs. Initially, all the secured creditors must be paid against the proceeds from various assets. Afterwards, the series of creditors, who are ranked in terms of priority sequence, have the next claim or right on these residual proceeds.

Ownership equity is the last or residual claim against these assets, which is paid only after all other creditors are paid. In such a scenario, even the creditors who do not get enough money to pay their bills, there is nothing over to reimburse the owner’s equity. Thus, this makes the owner’s equity to zero. The ownership equity also becomes known as the risk capital or liable capital.

An equity investment is generally referred to as the buying and holding of shares in a share market by various individuals and companies in anticipation of an additional income from dividends and/or capital gains as they expect the value of the stock to rise.  When the equity holder receives the right to vote, it means that he can vote for the candidates for a majority of the board of directors as well as some major transactions and residual rights, which means that they share some portion of company’s profits as well as may help in recovering some of the company’s assets in the event of bankruptcy or any untoward incident that might harm the company’s liquidity. This is possible despite they having the lowest priority in recovering their investments.
It might also refer to the acquisition of ownership or participation in a private or a startup company. These equities which are held by private individuals are often known as mutual funds or other forms of collective investment scheme. Many of these have quoted prices that might be listed in financial magazines or newspapers.
The mutual funds are managed by prominent fund management firms that allow such holdings in the hands of private investors and pension funds, who are subjected to hold shares directly. In such institutional environment, many clients who hold their own portfolios have what we know as segregated funds. As opposed or in addition to the pooled mutual fund alternatives.
A calculation made can be made to assess whether equity is overpriced or underpriced, in comparison to a long term government bond. This is known as the yield gap or the yield ratio. It is the ratio of the dividend yield of equity and that of the long term bond.
Online share trading in India, open demat account in Angel Broking for Stock market

Thursday, May 24, 2012

Factors influencing Stock Prices in India


A stock price or share price is the price of a single stock or a number of stocks that are saleable of a particular company. Once the stock or stocks have been purchased, the owner becomes a shareholder of the company that has issued the particular stock.
Analysts use random walk techniques in economics and financial history to model the behavior of asset prices in particular share prices on stock markets, currency exchange rates and various commodity prices.
This practice is ritual and has its basis on the presumption that the investors will act rationally and without any biasness and any moment they can estimate the value of an asset based on future expectations.
Under these conditions, all the current information affects the price of the stock which changes only when any new information comes out. The asset price is randomly affected when new information appears randomly.
It has been demonstrated by empirical studies that prices do not completely follow the random walk.
Low serial correlations may exist in short term and have slightly stronger correlations over the long term. Their sign and strength also depends on a variety of factors.
It has been found by the researchers that some of the biggest price deviations are from random walks that result basically from seasonable and temporal patterns. Particularly, the returns in January normally exceed those in other months and on Mondays, stock prices may go down more probably more than on any other day.
It has been observed that these effects in various markets since last 50 years or so.
But there has been no satisfactory explanation for their persistence.
Most of the technical data is used by the anomalies to gather and extract information on future price movements via historical data. However, some economists’ follow the Eugene Fama as a result patterns occurs most frequently. This results in an irrational or insufficient behavior of many investors. The large amount of data that is available for researchers for an analysis that can literally cause fluctuations.
Another school of thought, i.e. behavioral finance is attributed by non-randomness to investigations, cognitive and emotional biases. Thus, this can cause a contrast with the main fundamental analysis.
When this is viewed over longer periods, the stock price may or may not be directly related to the earnings and dividends of the firm. Over short periods of time, more so for the younger or smaller firms, the relationship between a stock price and dividends are mostly unmatched.
open demat account for online share trading