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Questions
1. I cannot do short selling as my psychological set up is only for buying and then selling. What do you suggest me to do?
2. How could I achieve success in stock market?
3. Is it sound to invest in a particular sector or one should go for the best possible combination of stocks of different sectors?
4. What is the future of BPO (Business Process Outsourcing) industry in Indian market? How will the listing of shares of call centers in stock exchange effect other sectors?
5. Insurance and stock market are two entirely opposite markets. How far it is justified for insurance companies to invest  into stock market ?
6. What is put call ratio (PCR)?
7. How much capital one should invest in stock trading?
8.  Should I go in for margin trading i.e. trade in risky instruments like futures as I have to pay very less margin?
9. I could do a little experiment but the trading game is not one for me as  I want to have a proper system for trading. What do you think about it?
10. What do you mean by positive and negative divergence?
11. How can I buy shares? 
12. What should be the kind of psychology or traits one should not have while trading in the stock market?
13. What is an IPO?
14. Why companies come out with an IPO?
15. What is the benefit of picking up shares from IPO rather than buying from stock market?
16. What if I don't want to sell my shares soon?
17. Buying from primary market is quiet complex process, application often gets rejected. So, why I should  approach to a difficult process?
18. What is the procedure of applying shares through IPO?
 
   

1. I cannot do short selling as my psychological set up is only for buying and then selling. What do you suggest me to do?
Ans.
70% of investors have never indulged in short selling as the thought of selling doesn't appeal to their psychological set up. Rather most of investors are optimistic people who only think that stocks can go up. In fact the short sellers are very highly skilled traders. Some people think of short sellers as wealth destroyers whereas on the other hand  they give a lot of liquidity to the stock markets. The reality is that stock markets are cyclic in nature and they tend to go up and down. In fact it has been seen that generally the fall is more steeper than the rise. If you wish to short sell the stock, you need to borrow from someone to sell it in the stock market and later buy back the stock and return to the person from whom you borrowed. In the Indian Stock Market you can trade in futures of stock as well as in  index and can short sell them and later cover them before the expiry. An interesting fact about short seller is that, they are the buyers when market falls as they will buy their shorts which gives a cushion to the market. Different stocks exchanges in different countries have their own rules with regard to short selling and at times when there is too much of negative news, short selling is banned for sometime.

 

2. How could I achieve success in stock market?
Ans. There are two steps to achieve success in the stock market.
1.) How not to lose :- When you learn what to do and what not to do in order to lose nothing means you have won the half battle. Only then you can learn how to gain or what to do in order to win. A new investor should do paper trading in order to get the market knowledge before actually entering into the market.
2.) How to gain :- How to gain requires deep understanding about the market trends and fluctuations . A new investor can safeguard himself by taking the route of mutual fund.

 

3.3. Is it sound to invest in a particular sector or one should go for the best possible combination of stocks of different sectors?

Ans. It is better to invest in a basket of sectors if you are investing for a long term as it will spread your risk across the sectors with the result that any loss in one sector will be compensated with the profit in the other sector.

"Never put all the eggs in the same basket"

 

4. What is the future of BPO (Business Process Outsourcing) industry in Indian market? How will the listing of shares of call centers in stock exchange effect other sectors?
Ans. Future of BPO sector is very good in India, as India is a low cost service provider . It also has abundant manpower skills which are highly qualified and are available at one third (1/3) to one fifth (1/5) the cost in developed countries. BPO stocks are likely to do good.
The direct call center stocks have still not been listed on the stock exchanges but companies like Wipro, Infosys, HCL etc. having BPO centers which are already listed on the stock exchange are already doing very well.

 

5. Insurance and stock market are two entirely opposite markets. How far it is justified for insurance companies to invest into stock market?ake profit on your advice?

Ans. t sounds very strange that insurance companies who are not supposed to be taking risk directly in stock market invest in stock markets which is a very risky field. But insurance companies have to deploy their funds and give return to their investors or policy holders. The insurance companies invest very little percent (15% in the equity as per Insurance Regulatory and Development Authority norms) in the risky market.

 

6. What is put call ratio (PCR)?

Ans. Put call ratio (PCR) can be judged for a particular stock or index or all the available option stocks. In the Indian stock market context investors generally talk more about the PCR of nifty which can be found by the total number of nifty puts divided by total numbers of nifty calls (Nifty Puts/ Nifty Calls). The data can be available from the Nse site. PCR ratio has not been able to give clear guidance of the trend of Indian stock market.

 

7. How much capital one should invest in stock trading?
Ans.
Capital to invest for a person depends upon the certain circumstances.
1.) Time and efforts one plans to put into :- One should see for oneself what kind of a trader one is. If you are a full time trader and this is your only profession then probably you will have to invest more than 80% of your capital. But if you are a part time investor then you should invest your disposal surplus money only.
2.) Experience in the market :- If you are transacting from years , you will continue along the same lines, by applying new techniques to your operations whereas if it is a new field for you or just a hobby, you should move slowly.
3.) Capacity to invest (or to bear the risk) :- Some people are at a young age so they can afford to be more risky whereas if you are on the verge of retirement then probably you will have to take less risk so less investment in the stock market.

 

8.  Should I go in for margin trading i.e. trade in risky instruments like futures as I have to pay very less margin?
Ans.
Margin trading means you have x amount of money and wish to have a 4x or 5x exposure in the market. Margin trading will make you more risky and with more risk there is a more opportunity for a faster gain. If you wish to take risk, you should be clear as to what risk you can take and how much you can afford. In a future stock buying or selling, the margin transaction will make you buy more stocks than you have money to pay for. My strong advice to you is to always maintain stop loss i.e. the maximum loss after which you need to close the position because if a trade goes against you then your entire margin can be wiped out. Try and not  play with more than 10% of your disposable money in margin trading.

 
9. I could do a little experiment but the trading game is not one for me as  I want to have a proper system for trading. What do you think about it?
Ans. Yes, you are right. Trading in stock markets is not something of a game as the loss and profit is in real terms, chances of a new comer making a loss is more than 80%. Before actually trading with your hard cash, it is better that you develop some sort of a system which you have tested on the previous trading days, assuming the previous trading days you treated as if you are trading live.
For example, if you wish to develop a system which says that whenever a 25 day moving average (DMA) crosses a 40 day moving average (DMA) from below, you are going to buy that stock and when a 25 DMA is going to cut the 40 DMA from top you are going to sell. Now you should test whether this crossover of 25 DMA and 40 DMA gave profitable trades in last six months or not. If  you find that in last six months this crossover gave you profits, then this is a small system developed for you and then you blindly follow the system and start making profits. While doing system trading, you need to be quite confident on your system as if you are not confident then you would not be able to take all trades as you might get panicky once the system generates negative trades giving losses. This system trading has its own advantages as you are able to take objective decisions and do not get confused as to whether you should buy or sell. You may refine and make your system better with practice.
 
10. What do you mean by positive and negative divergence?
Ans. Positive and negative divergence basically refers to the technical charts in which the stock and the indicator in question move in different directions and it is the indicator which gives you the hint towards direction which the stock is likely to take. You cannot understand the positive and negative divergence without really seeing the chart in front of you.
   
11. How can I buy shares?
Ans.
There are two ways to buy shares.
1.) Primary market :- When a company makes a new issue of shares and offers directly to the public is known as primary market. It is also called an initial public offering (IPO). The investors either apply on the basis of the issue price or need to bid by the book building process.
2.) Secondary market :- Buying shares of a company which is already listed in the stock exchange is called secondary market. The shares in secondary market are bought through brokers. 
 
 
12. What should be the kind of psychology or traits one should not have while trading in the stock market?2
Ans.
A good trader should not be a pessimist and unsure of himself. One who lacks confidence is sure to meet his end very soon. One should not be interested in trying to listen to gossip, believe in rumors and should rather base his investment decisions on solid fundamental and technical information. There is no easy answer to tell whether one is doing right or wrong in the stock market. But if you are giving losses that should be sufficient to tell that you are going wrong. The entry and exit are the most important points for an investor to take care of because if the initial entry is made at higher prices, then the panic and risk associated with higher prices is there. 
 
13. What is an IPO?
Ans.
When a company either listed or non listed (brand new) comes out with its new issue and invites public to buy directly from them rather buying from brokers is called initial public offering (IPO).
 
14. Why companies come out with an IPO?
Ans.
Companies need money for growth and expansion, purchasing new machinery, building infrastructure or even repay their debt. Therefore companies ask people to invest and issue IPO. People who invest get returns in the form of dividend declared by the company at the end of every financial year or are able to sell the stock in the stock market when the market price of the stock goes up and hence make profit out of it.
 
 
15. What is the benefit of picking up shares from IPO rather than buying from stock market?
Ans.
Often companies issue their shares at par or at economic rate to attract public and when the shares get listed in the stock exchange generally the prices go up. Short term traders immediately sell those shares and make profits. Long term investors wait for their eggs to hatch properly before selling.
 
16. What if I don't want to sell my shares soon?
Ans.
IPO also offers investors the chance to grow with the growing company. Investors get dividend as a reward for investing at the end of every financial year. Sometimes companies also offer premium shares to the existing share holders as a bonus.
   
17. Buying from primary market is quiet complex process, application often gets rejected. So, why I should  go through a difficult process?
Ans.
Good company often gets over subscription (demand for shares more than number of shares offered). In this scenario the company either rejects some applications and return the entire amount within 21 days or allot shares on pro rata basis (partial allotment) and adjust the surplus money in the subsequent calls. Sometimes the companies have a green shoe option whereby they retain a certain extra percentage of money and issue slightly more shares than original.
   
18. What is the procedure of applying shares through IPO?
Ans.
IPO are generally heavily advertised in the media and newspaper because companies want to ensure the success of their issue. Through this advertisement Companies also get a good publicity for their product. One must go through the prospectus very carefully as every detail about the subscription is clearly mentioned in it. The information is also available on company's site or SEBI web site. Fill up the application form carefully. Application form are available at any broker's office or on some street kiosks in the financial area of a city. Fill it up and deposit along  with application money in the form of cheque or bank demand draft. If you get subscription pay the subsequent call money on time in order to get relief from penalty or forfeiture. 
 
 
 
 

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