Category: Trading

Swing Trading vs Day Trading: Which Strategy Is Right For You?

A million-dollar question: which trading strategy is right for you: Swing Trading or Day Trading? Let’s find out the answer.

What is Day Trading?

The Day trading involves buying and selling of financial instruments like stocks, bonds, futures, commodities, and currencies to generate profit from the short price movement within a single trading day. Many positions can be entered, which can last from several minutes to a few hours during the single trading day.

Traders essentially close the position before the day ends to avoid risk exposure. As the activity of buying and selling takes place within a single day, traders make fast decisions on market direction and usually exit once the trade goes against their view.

Anyone can perform day trading, but it requires lots of time and effort to monitor positions and some technical setup and knowledge to decide when to exit the market. A day trader wants to keep the risk minimum by not carrying it overnight. This is one of the major reasons for holding positions only until the end of the day because they are not subjected to overnight changes.

There are multiple techniques which traders deploy in Day Trading. Some day trading techniques include:

Scalping: It Involves buying and selling a stock multiple times in a day to make small profits from small price movements. The time period for holding a trade could be a couple of seconds to minutes.
Range trading: It Involves buying when an asset’s price is in a particular range, it could be near the low end of the price range and selling when it’s near the high end of price range.
Algo Trading or High-frequency trading (HFT): It uses a computer-based system to automatically track price changes and execute trades. It is also called Algo trading.
Momentum trading: It means entering into a position of buying and selling on the basis of recent primary trends and exiting as soon as it shows signs of reversal. Momentum traders tend and volatility.

What is Swing Trading?

It involves buying and selling a financial instruments such as stocks, bonds, currencies, and commodities in an attempt to exploit short to mid-term price movements in a security using a favorable risk-reward ratio. The time period for holding a trade could be several days to weeks.

Swing trading is often considered better for beginners compared to scalp trading or day trading. It requires fewer orders compared to scalp trading, hence lower trading costs. Also, it doesn’t require continuous monitoring. Though the minimum return is not guaranteed in this, Swing traders still have the potential to make a similar profit as of a scalper with less trading activity and less risk.

Swing traders use many technical analysis signals to enter and exit a trade, such as Fibonacci retracement, Channel trading, MACD, RSI Crossover, divergences, and moving averages. Moreover, they also use Fundamental triggers like Quarterly results, management insights, inflation, interest rate scenarios, etc.

What is the difference between Day Trading Vs Swing Trading

Day Trading	Swing Trading
There is a low margin requirement for the Day trading as traders close the position on the same day.	The requirement of margin is high compared to day trading.
The higher leverage is made available for Intraday trading.	The lower leverage is available for swing traders as it involves holding a position for days.
Day traders are known as full-time traders as more time is required to execute and monitor the trades.	Swing traders are known as part time traders as less time is required to monitor the trades.
They make multiple trades and keep on exiting with small profits and losses.	Swing traders analyze trends and choose securities that will perform better in future to earn profits.

Quick Summarization

Swing trading requires less involvement than day trading as it requires less monitoring.
Swing trade positions are subject to overnight market risks, as swing trading often involves at least an overnight hold, whereas day traders close out positions before the market closes.
Day traders have more access to margin or leverage as compared to Swing traders. Hence in day trading, because of leverage, traders risk magnifies but the good thing is if market goes against their view, they have time to instantly cut the position.
Swing traders may incorporate both technical and fundamental analysis, whereas a day trader is more likely to focus on using technical analysis.

Conclusion

In summation, there are no right or wrong answers to which trading strategy is right for you. It depends upon your skills, style, preference, and availability of time.

Most of the people think trading is different from their actual mentality. Technical analysis, which is one of the tools used to gauge market direction, is nothing but a tool for judging mass psychology. The more the traders anticipate that the market is still undervalued or a certain sector or stock is available at a good valuation, the more they will buy, and the market will start taking support and eventually bounce. In similar way, the more the traders perceive that the market is overvalued or certain group of stocks or sectors are expensive, the more they will start exiting their position or start shorting.

If traders could think they can analyze the market better, and are able to take risks to bet on market direction, then it is suggested that they go for Swing Trading. There are pros and cons of both the trading styles, so after taking them into consideration and as per one’s risk appetite, one can choose their respective trading style, Swing or Day Trading.

Frequently Asked Questions (FAQs)

What is Day Trading?
Day trading is the activity of buying and selling financial instruments like stocks, bonds, futures, or commodities to generate profit from the price movement within a single trading day.
What is Swing Trading?
Swing trading is the activity of buying and selling financial instruments like stocks, bonds, futures, or commodities to generate profit from the price movement where traders keep the position open for a few days to a few weeks.
Do Swing Traders make multiple trades?
No, it is Day traders who make multiple trades and keep on exiting with small profits and losses.
Which trading Strategy is less risky?
Day trading is less risky than the Swing Trading as a trader can close the position on the same day, and there are no overnight uncertainty risks.
What is the major difference between Day Trading and Swing Trading?
There are various differences in Day trading and Swing trading such as difference of risks, time period, costs, size of profits and losses, etc.

June 7, 2024

Synthetic Futures – Definition, Risk, Advantages, Example

Did you know that you can create a payoff similar to a futures contract using call and put options? We are talking about Synthetic Futures, one of the least discussed topics in options trading. Let’s have a deep dive into it.

What are the Synthetic Futures?

A synthetic future contract is a financial instrument that replicates the payoff of a traditional futures contract using other financial instruments such as options, swaps, or contracts for difference (CFDs). However, traders generally use options to create synthetic futures.

In synthetic futures option version, we use options (call and put options) to replicate the payoff of a futures contract. For example, an investor buys a call option and sells a put option of same expiration date for a long synthetic future. And for a synthetic short future, the positions are reversed.

The purpose of doing this is to replicate the payoff of the futures contract (without owning a physical asset) and or to bypass/reduce the limitations/risks associated with trading actual futures contracts.

Risks associated with Synthetic Futures

Liquidity Risk: Traders can face difficulty in executing and exiting synthetic future trades because of limited liquidity available, particularly in stock-specific contracts. Further, a higher bid-ask spread can reduce the profits.
Regulatory Restrictions: The use of synthetic futures contracts may be subject to regulatory compliance and restrictions in certain jurisdictions. Investors should be aware of the applicable laws and regulations governing these contracts in their respective countries.
Counterparty Risk: If you’re trading in Over the counter (OTM) markets, synthetic futures may involve counterparty risk, there is a risk of default or non-performance by any of the involved parties. It is crucial for investors to assess the creditworthiness and reliability of the counterparties before entering into synthetic positions.

Benefits of Synthetic Futures

Lower Margin Requirements: One of the key advantages of synthetic futures contracts is that they often require lower margins compared to traditional future contracts.
Flexibility and Customization: Synthetic future contracts enable investors to speculate on the various asset classes, including commodities, currencies, indices, and even individual stocks. Also, it allows traders to do certain adjustments using call and put options which is absent in future contracts.
Cost Efficient: The ability to make adjustments in the underlying asset helps in saving a lot of money.
Potential for Enhanced Returns: Due to the lower capital requirements and the ability to leverage derivative instruments, synthetic futures contracts offer the potential for enhanced returns.

Example

Consider that Berger paints is trading at INR 500. And a trader purchases a call option of ATM strike price, i.e., 500 strike for INR 50. This call option gives the trader the right, but not the obligation, to buy Berger Paints stock.

Simultaneously, the trader sells a put option of 500 (ATM strike) for INR 30, with the same expiration date.

By doing this, the trader has effectively created a synthetic long futures contract on Berger Paints stock by combining these two options. Thus, he or she can profit from the price increase if the stock price rises above INR 500.

Based on the below formula, the net outflow of synthetic futures will be calculated as follows:

Net Cash Outflow = Call option – Put option = 50-30 = 20

Keep a note that we are buying the ATM Call Option and simultaneously selling the ATM Put Option. Further, the call and put options belong to the same underlying and same expiry. Synthetic Long mimics the payoff of the long futures contract. In case of short synthetic futures, we buy ATM Put Option and sell ATM Call Option of the same underlying and same expiry.

Let us consider a few expiry scenarios:

Berger Paints stock expires at 400 (Below ATM)
- At 400, the 500 CE will expire worthless, hence we will lose call premium paid that is INR 50 but PE will have an intrinsic value of Max (Strike – Spot, 0), i.e., Max (500-400, 0) or 100 as we are short on this put option, we will lose the money from the premium, 30 – 100 = (70)
- Total payoff from the long Call and short Put position would be, -50 – 70 = (120). Here, we made a loss of INR 120.

Stock expires at 500 (At ATM )
- If the market expires exactly at 500, then both the options will expire worthless. Hence, we will lose the premium paid for the call option option = 50. But we will be able to retain the premium for the PE option = 30.
- The net payoff from both the positions will be, 30-50 = (20). Here, we made a loss of INR 20.

Stock expires at 600 (Above ATM)
- At 600, the 500 long CE would have an intrinsic value of 100, we would make, [Intrinsic value – Premium Paid] = 100 – 50 = +50. The 500 short PE would expire worthless; hence we get to retain the premium of INR 30.
- Total payoff would be = +50 + 30 = INR 80

We can conclude that the strategy makes money when the market moves higher and loses money when the market goes down, similar to futures. However, this does not necessarily mean that the payoff is similar to that of futures. To establish that the synthetic long payoff behaves similar to the futures, there should be a payoff symmetry around the breakeven point that is called linearity and then only it will behave like futures.

Conclusion

Synthetic futures contracts have gained popularity in the financial markets as they provide investors with a unique tool to gain exposure to the underlying assets without actually owning them. These contracts are designed to replicate the price movement and characteristics of traditional futures contracts.

By replicating the characteristics of an actual Futures contract, Synthetic futures give flexibility, risk management and increased trading opportunities. However, it is essential to understand the risks involved and have a good understanding of options strategies with proper knowledge and skill.

FAQs

What is a Synthetic Futures?
A Synthetic Future is a financial instrument that mimics a futures contract’s characteristics and potential returns without having its limitations.
Can I create Synthetic Futures apart from Options?
Yes, it can be created using other financial instruments as well, like Swaps and CFDs.
What are the advantages of Synthetic Futures?
It provides alternative trading strategies and effective risk management tools.
What is one of the limitations of Synthetic Futures?
One of the limitations of Synthetic futures is the limited availability of certain synthetic instruments because of low volumes in call and put options.
Is Counterparty Risk involved in Synthetic Futures?
Counterparty risk is the risk of loss from a default of the counterparty. In case of OTC markets, it is a primary risk in synthetic futures and are subject to creditworthiness of the counterparty.

June 7, 2024

NIFTY Next 50 – Meaning, Types & Features

Are the gains offered by the Nifty 50 overwhelming you? We are here to inform you that this is only the beginning; discover the possibilities of the Nifty Next 50 market movers!

This blog will explore the Nifty Next 50 and the recent development by NSE in detail.

What Is Nifty Next 50

The Nifty Next 50 index comprises 50 large-cap stocks from the Nifty 100 after the first 50 shares of the Nifty 100 are removed. Nifty Next 50 is a tool that investors use to keep track of and find prospective future large-cap companies. Nifty Next 50 companies can come from various industries, including finance, pharmaceuticals, FMCG, etc. As of September 2023, the Nifty Next 50 stocks comprise around 10% of the NSE’s entire free-float market capitalisation.

Correlation with Nifty 50

Sriram Krishnan, NSE’s Chief Business Development Officer, stated that the Nifty Next 50 index has a beta value of 0.95 and a 71% correlation with the Nifty 50 index.

Did you know?

Over 40 stocks have been upgraded to Nifty 50 within the past 18 years.

Sectoral Weightage

Sectors	Companies	Weightage	Market Cap (in ‘000 Cr)
Finance	7	13.52%	10,45,871.20
Power Generation & Distribution	4	10.63%	8,22,400.78
Insurance	3	10.48%	8,10,640.24
Aerospace & Defence	2	7.07%	5,46,957.10
FMCG	4	6.49%	5,01,711.57
Retail	2	5.88%	4,54,929.85
Capital Goods – Electrical Equipment	2	5.54%	4,28,682.07
Banks	3	4.95%	3,82,849.35
Cement	2	3.20%	2,47,197.61
E-Commerce/App based Aggregator	2	3.08%	2,38,422.56
Gas Distribution	2	3.06%	2,36,450.42
Refineries	1	3.05%	2,36,107.11
Chemicals	2	2.88%	2,22,560.03
Realty	1	2.62%	2,03,000.31
Pharmaceuticals	2	2.53%	1,95,954.21
Auto Ancillaries	2	2.43%	1,87,787.04
Mining & Mineral products	1	2.19%	1,69,188.64
Air Transport Service	1	2.09%	1,62,001.05
Consumer Durables	1	1.53%	1,18,142.28
Steel	1	1.39%	1,07,354.07
Automobile	1	1.38%	1,06,992.52
Railways	1	1.12%	86,616.00
Alcoholic Beverages	1	1.12%	86,325.64
Edible Oil	1	1.02%	78,687.86
Paints/Varnish	1	0.75%	57,794.34

(As of 28th May 2024)

Based on the above table, we can conclude that the finance sector has the highest allocation of 13.52%, followed by the power sector, which has 10.63%.

Nifty 50 vs Nifty Next 50

As previously established, the Nifty 50 and Nifty Next 50 are components of the Nifty 100 index. However, there is a significant disparity in the size of the companies in these two indices, which causes large differences in the returns.

Benchmark Name	2021	2022	2023	2024 (YTD)
Nifty Next 50 TRI	30.9	1	27.2	13.2
NIFTY 50 TRI	25.6	5.7	21.3	3.7

As the above table shows, the Nifty Next 50 Index has surpassed the Nifty 50 benchmark but reflects a higher volatility in returns.

Introduction of Derivative Contracts by NSE

With approval from the Securities Exchange Board of India, the National Stock Exchange launched derivative contracts on the Nifty Next 50 index on April 24, 2024 (SEBI). In this derivative contract, the exchange will provide traders with three series of monthly index futures and option contract cycles—near-month, mid-month, and far-month. The contract typically ends on the final Friday of the expiration month.

Waiver of Transaction Cost

Furthermore, to encourage more people to participate actively in the Nifty Next 50 Index, the NSE has announced that it will waive transaction costs for trading in futures and options contracts on the index for the first six months ending October 31, 2024.

First Monthly Expiry Insight

The first monthly expiry is scheduled for 31 May 2024. The index has shown a turnover of more than 1100 crores within 3 weeks of its launch. The average daily turnover of the Nifty Next 50 Index is 50-60 crores, and the peak turnover is 82 crores. 7 ETFs and 13 mutual funds track the index.

Conclusion

The Nifty Next 50 index allows investors to profit from expanding industries and businesses. However, its volatility is comparable to mid-cap firms. Consequently, investors are urged to consider their risk tolerance before investing.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
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2	What Is Nifty 50? How To Invest In It?
3	Bank NIFTY Intraday Options Trading: Steps, Strategies & Tips
4	Introduction to Gift Nifty: A Cross-border Initiative
5	How has Budget 2025 impacted Bank Nifty?

Frequently Asked Questions (FAQs)

In which year was the Nifty Next 50 Index introduced?
The Nifty Next 50 Index was introduced on 1st January 1997.
Which sector has the highest allocation in the Nifty Next 50 Index?
The banking & finance sector has the highest allocation of 13.26% in the Nifty Next 50 Index, followed by the power sector, which has a weightage of 10.64%.
Should I invest in Nifty Next 50 Index funds now?
Investment in the Nifty Next 50 Index offers a higher return than the Nifty 50 Index but also comes with higher volatility. Therefore, you can consider investing in this index if you have a longer investment horizon and can take risks.
Can I use the Nifty Next 50 Index derivative for trading purposes?
You can use the Nifty Next 50 derivative for trading purposes.
Is the stock in Nifty Next 50 a part of large-cap stocks?
Indeed, the stocks that comprise the Nifty Next 50 belong to the large-cap stock category. This is because the top 100 firms, determined by their free-float market capitalization, are classified as large-cap stocks.

May 31, 2024

Why Are PSU Stocks Falling? Key Insights and Considerations

The Indian infrastructure sector is the backbone of the nation’s economic growth. Financing these large-scale projects is crucial, and project finance has filled the gap. However, the RBI recently introduced draft guidelines aimed at revamping this system.

In this blog, we will learn about these new RBI regulations and explore their impact on lenders and borrowers. Further, we will also understand whether they usher in a new era of prudence in project finance.

PSU Stocks – An Overview

PSU stocks refer to the shares of companies that are categorised as Public Sector Undertakings. These are businesses where the Indian government holds a majority stake, i.e., at least 51% ownership. Examples of PSUs include LIC, BHEL, Indian Oil, BSNL, NTPC, ONGC, SBI, etc.

These companies operate across sectors like energy, oil & gas, power, banking, insurance, infrastructure, manufacturing, and telecommunications.

PSUs have a profound impact on the economic growth of India through the provision of vital goods and services, the promotion of balanced development, as well as the effective implementation of government policies.

Why there was a fall in the PSU stocks?

The share of PSU stocks witnessed a sharp decline of up to 13% after the Reserve Bank of India’s implementation of more stringent regulations regarding project finance on 7 May 2024.

But, what is Project Finance?

Project Finance is a way to fund long-term infrastructure and industrial projects. It is distinct from conventional corporate loans, as it depends on the project’s cash flow for debt repayment rather than the creditworthiness of the sponsoring companies. In the event of default, lenders generally have limited recourse to the sponsor’s assets due to the project’s status as a distinct entity. The primary concern revolves around the security of the project’s assets and revenue.

It is often used for large and complex projects that have high initial expenses, such as power plants, toll roads, bridges, tunnels, dams, etc.

Let us have a quick overview of RBI’s new guidelines for project finance:

As per the RBI letter dated 7 May 2024, Banks must increase their provisions for loan defaults during the project’s construction phase. The provisioning amount for this loan can be as high as 5% in contrast to the existing 0.4%. This may result in higher borrowing costs for developers and infrastructure companies.

The proposed implementation of the 5% provisioning requirement is set to be carried out gradually until the fiscal year 2027.

The provisioning requirements shall be alleviated as the project advances towards the operational phase. Once operational, banks may be required to only set aside 2.5% of the outstanding loan and this reduction can be further minimised to 1% if the project meets the specific financial performance benchmarks.

The RBI has proposed minimum exposure requirements for projects that are financed by multiple lenders, also known as consortium lending. This means that each participating bank needs to have a minimum loan portion relative to the total project cost.

Additionally, it is stipulated that when the participant lenders collectively have an exposure of up to INR 1,500 crore, no individual lender shall be permitted to have an exposure that is less than 10% of the aggregate exposure, and for projects where the aggregate exposure of lenders is more than INR 1,500 crore, the individual exposure floor will be 5% or INR 150 crore, whichever is greater.

Objectives of RBI Guidelines

There are two main objectives behind RBI’s new guidelines on project finance:

The primary objective behind this is to prompt lenders, i.e., banks and financial institutions to exercise greater caution when providing financing for projects. The RBI has mandated banks to allocate higher provisions (up to 5% during construction) to ensure careful assessment of project risks before allocating funds. This can make project finance more stable in the future, with fewer loan defaults.
Implementing more rigorous loan approval procedures and emphasizing risk mitigation measures could catalyse project developers to enhance their project planning, feasibility, and overall execution. This will lead to higher quality projects with better chances of success and timely completion.

Impact of the New RBI Guidelines

The new draft guidelines for project finance by the RBI are anticipated to have a diverse influence on the myriad of stakeholders participating in this domain:

Lenders will need to set aside more money, which can go as high as 5%, for lending during construction. As a result, developers can expect borrowing rates to increase by 100-150 basis points. This means that loans will become more costly.
The implementation of more rigorous loan approval procedures and the presence of a cautious lending climate may result in setbacks in obtaining project finance.
New reporting requirements and consortium lending norms might add complexity to the loan approval process for banks.

Read Also: RBI Retail Direct Platform

Conclusion

To sum it up, the RBI’s new guidelines for project finance aim to create a more balanced and risk-averse project financing environment. However, short-term challenges for borrowers and lenders may arise, but the long-term benefits of better project quality and stability could be substantial. The success of these guidelines will depend on effective implementation and open communication between lenders, borrowers and regulators.

Frequently Asked Questions (FAQs)

How will new RBI guidelines on project finance impact borrowing costs?
With new guidelines, the Banks have to raise interest rates by 100-150 basis points because of increased provisioning needs, making project finance more expensive.
Will new RBI guidelines on project finance affect borrowers?
The Borrowers will face stricter loan approvals and higher borrowing costs, and there can be project delays.
Can RBI’s new project finance guidelines slow down project financing?
Tighter regulations and higher costs might cause a tentative slowdown, especially for smaller projects.
Are project finance guidelines released by RBI the final one?
No, these are draft guidelines. The final regulations may differ after considering the feedback of all stakeholders.
When will RBI’s new guidelines for project finance come into effect?
A phased implementation of new guidelines is expected, with full effect by March 2027.

May 17, 2024

Delisting Of ICICI Securities : Reasons and Brief Explanation

Ever heard of a company delisting itself from the stock market on purpose? That is precisely what is happening to the ICICI Securities. In March 2024, the minority shareholders showed their support by voting in favour of ICICI Securities’ delisting, and to merge with its parent company, ICICI Bank. But before you jump to conclusions, this was not bad news. It was a strategic move by ICICI Bank to simplify its structure and create a more robust financial force.

In this blog, we will explore the reasons behind the proposed delisting of ICICI Securities, the process, and how this decision could benefit both ICICI Bank and its shareholders.

ICICI Securities – Brief

ICICI Securities is a listed company founded in 1995 as ICICI Brokerage Services Limited and is a subsidiary of ICICI Bank. The company embraced technology and launched a revolutionary online brokerage platform, ICICIdirect.com, in 2000 and pioneered online investment opportunities in mutual funds and government bonds. It expanded its reach through physical ICICI direct branches across India in 2005 and diversified services by offering health and life insurance products by 2006. The company name was officially changed to ICICI Securities in 2007.

On November 9, 2023, the Reserve Bank of India approved ICICI Bank’s request to establish full ownership of ICICI securities. About 71.9% of the brokerage’s minority shareholders approved the delisting, which is higher than the regulatory requirement of a two-thirds majority.

The ICICI Bank is offering 67 shares of ICICI Bank for every 100 shares of ICICI Securities held by the shareholders. However, there was some disagreement among investor groups. Institutional shareholders, who have a more significant stake, supported the delisting, while some retail investors opposed it.

Additionally, the Quantum Asset Management Company (QAM), with a 0.21% stake in ICICI Securities, voted against the deal. According to QAM, ICICI’s offer for the stake is undervalued. It should be priced at approximately INR 940 per share, considering the lowest multiple among its comparable peers in the market. This valuation is significantly higher than the current offer on the table by the ICICI Bank.

Why Retail Investors are not in favour of Delisting

A few Retail Investors are opposing the delisting of ICICI Securities because of the Swap Ratio concern:

Swap Ratio Concern – Retail investors felt that the exchange rate offered by ICICI Bank (67 shares of ICICI Bank for every 100 shares of ICICI Securities) undervalued the ICICI Securities. They believe that their holdings are worth more than the offered price, and the swap ratio would not translate to the same potential growth as holding separate stocks.

If you’re not familiar with Swap Ratio, it refers to the exchange rate at which shares of the acquiring company (ICICI Bank in this case) are offered for shares of the target company (ICICI Securities). It establishes the percentage of ownership a target company shareholder will receive in the new or surviving company.

Reasons for Delisting of ICICI Securities

ICICI Securities is proposed to become a wholly-owned subsidiary of ICICI Bank, which would give ICICI Bank complete ownership and control over ICICI Securities.

The Bank believed that merging the two entities would improve efficiency and allow it to offer a broader range of financial products and services under one roof. The Delisting would also allow for streamlining operations and decision-making processes within the bank.

Delisting – An Overview

The Delisting refers to removing a company’s stock from a stock exchange, i.e., NSE and BSE in India. This means the stock can no longer be traded on an exchange. The companies might delist their shares for several reasons, such as mergers and acquisitions, non-compliance with listing requirements, financial distress, etc. Generally, the delisting can be classified as voluntarily or involuntarily.

Voluntary Delisting
A company might choose to go private or get acquired by another company. In this case, the company will generally offer shareholders a way to sell their shares before the delisting happens. ICICI securities is a case of voluntary delisting.

Involuntary Delisting
This happens when a company does not follow the stock exchange listing requirements. There are different requirements a company needs to meet to stay listed, such as maintaining a specific price or filing several reports on time. The exchange can delist, if a company does not meet the listing requirements.

You must wonder what happens to the shares after the company is delisted, particularly in case of Involuntary delisting. Even though delisting makes things trickier, you still own a stake in the company, as indicated by your shares. Let’s have a quick overview:

Once the company is delisted, you can no longer trade it on the stock exchange. This significantly reduces liquidity, meaning finding a buyer for your shares might be challenging.
You might be able to sell your shares on the Over the counter (OTC) market, which is essentially a network of dealers who trade securities outside of exchanges. However, OTC markets are less regulated and generally have wider bid-ask spreads than the stock exchange.
Shareholders might find it challenging to sell their shares as there may be limited buyers in the OTC market.
In case of voluntary delisting, the acquirer provides the buyback window. The shareholders can sell their holdings to the promoters before delisting.

Conclusion

The delisting of ICICI Securities will mark a turning point for the company and ICICI Bank. While some retail investors expressed concerns, the goal is to create a more efficient financial institution. Only time will tell the impact of this strategic move. The company may be delisted, but the decision positions them for future growth as a part of a stronger financial entity.

Additionally, the delisting will pave the way for a more streamlined and competitive financial giant. This could be a positive development for ICICI Bank and the Indian financial landscape. Also, SEBI is currently reviewing multiple complaints regarding the delisting. Upon the collection of substantiated evidence, the SEBI will initiate an investigation. The actions that SEBI may take remain uncertain.

Frequently Asked Questions (FAQs)

Why ICICI Securities is getting delisted?
The purpose of delisting is to simplify ICICI Bank’s structure, and achieve better integration between the two entities.
Did ICICI Bank take this decision because of the poor performance of ICICI Securities?
No, it was a strategic decision to delist ICIC Securities, and not due to negative performance of the company.
Did everyone agree with the delisting?
The institutional investors favoured the delisting; however, a few retail investors opposed it.
What will happen to the shareholders of ICICI Securities?
The shareholders of ICICI securities will receive the ICICI Bank shares in exchange for their holdings.
Will this delisting affect the stock price of ICICI Bank?
The long-term impact remains to be seen, but the move overall aims to strengthen the banking operations.

May 15, 2024

Price Action Analysis: An Easy Explainer

Have you ever felt the stock market is a complex puzzle with cryptic messages hidden within its charts? Price action analysis can be your decoder ring. This trading technique sheds light on the market psychology by focusing on the price movements.

In this blog, we will delve deeper into the world of price action analysis, exploring its core principles and how you can use them to make informed trading decisions.

Price Action Overview

Price Action Analysis is a method for traders to understand the market by examining the movement of a security’s price over time. It is a core concept in technical analysis, though some consider it distinct because it completely focuses on price movements without relying on additional indicators.

Price action traders concentrate on the highs, lows, openings and closings of a security’s price to identify trends, buying and selling pressures and trading opportunities.

By analysing price movements, traders can determine whether the price is in an uptrend, downtrend, or consolidation phase.

Traders use price action analysis to make informed decisions about entering or exiting trades.

Evolution of Price Action Analysis

Although the exact origin of price action analysis is unclear, but we can trace its roots back to the beginning of the market analysis.

In the early 20th century, before formal technical analysis existed, traders tracked prices on charts. This focus on price movements itself is the foundation of price action analysis.

In the 1880s, Charles Dow, a journalist and financial analyst, laid the groundwork for technical analysis with his Dow Theory. While not purely price-action-focused, it emphasized the importance of trends and price movements.

In the 1900s, technical indicators like moving averages and RSI started gaining prominence. While these provided additional data points, price remained a key input.

The late 20th century made traders feel that the dependence on complex indicators was detracted from understanding the price. This led to a renewed focus on price action analysis as a distinct approach.

Since then, the rise of online trading platforms and advanced charting software has made price action analysis more accessible to individual traders.

How to use Price Action Analysis

Remove clutter from your charts. Get rid of technical indicators such as RSI, MACD, Bollinger Bands, etc. leaving just candlesticks to focus purely on price movements.
Understand the concept of uptrends and downtrends to understand the overall direction.
Numerous price patterns emerge from the price action and can signal future movements. Some of the common examples are,
- Reversal Patterns – Head & Shoulders, Double top/bottom, Triple top/bottom, etc.
- Continuation Patterns – Pennants, Flags, Triangles, etc.
- Breakout Patterns – Breakouts above resistance or below support can signal trend continuation.

While price action is valuable, it should not be used in isolation. Consider using it alongside other confirmation methods such as volume, corporate events, news & events, etc.

Once you have grasped these concepts, you can use price action analysis to develop a trading strategy. This entails determining entry and exit points for your trades based on identified patterns and confirmations. Remember that every trader has their own judgement and analysis.

Advantages of Price Action Analysis

There are several advantages of using price action in your trading strategy. A few of them are:

Price action focuses on the core element of the market, i.e., price itself. This can be easier to learn and understand.
It can be applied to almost all the markets and asset classes, regardless of the underlying security or economic factors. In forex trading, most of the traders use Price Action analysis as there are no fundamentals in the forex market.
Price Action highlights trends which allow traders to position themselves according to the prevailing trend.
Understanding support, resistance levels, and critical concepts in price action analysis can help traders set stop-loss orders to manage risk.
Unlike some technical indicators that may become outdated as markets evolve, price action analysis focuses on the fundamental concept of price movements, making it a timeless approach.

Disadvantages of Price Action Analysis

Interpreting pricing trends is subjective, which is a disadvantage. It is highly likely that traders can evaluate the same price activity and come to different conclusions, which can lead to missed opportunities or even bad trades if misinterpretations occur.
Price patterns are not perfect predictors; they may generate false signals, which can lead to wrong trades. This can be frustrating and result in losses.
Price movements can be influenced by short-term factors and random noise, making it challenging to distinguish between genuine signals and fleeting fluctuations. This can lead to confusion and difficulty in making clear trading decisions, particularly in short time frames.
Price action analysis focuses solely on price movements and ignores other important factors that can affect markets, such as fundamental company analysis, economic data and news events. These factors can also affect prices and should be considered for a well-rounded analysis.
Past price movements do not necessarily dictate future outcomes. Markets can be unpredictable, and unexpected events can cause price movements to deviate from expected patterns.

Conclusion

Price action analysis offers a valuable lens for understanding the market. However, it is just one piece of the trading puzzle. You can strengthen your trading decisions by combining it with other technical analysis methods, such as RSI, MACD, Moving Averages, etc., and sound risk management strategies.

Moreover, to accurately spot patterns using price action analysis, it needs time and effort. New traders may require assistance interpreting the charts correctly.

As you gain experience, you will develop your own analytical edge and become more confident in navigating the ever-changing market landscape.

If you’re facing difficulty in Risk Management, check out our blog – Risk Management in Trading

Frequently Asked Questions (FAQs)

What is a Price Action analysis?
In Price Action analysis, you look at price movements on charts to identify trends, support/resistance levels, and trading opportunities.
What do price action traders focus on?
The price action traders focus on Candlestick patterns and analyse how price interacts with past highs and lows.
Is price action challenging to learn?
The core concepts are relatively simple, but mastering it takes time and practice.
Do I need special software for price action analysis?
There is no requirement of a special charting software. Any charting platform that shows historical price data will work for Price Action analysis.
Is price action analysis good for day trading or long-term investing?
It can be applied to both, depending on the specific patterns and timeframes used. However, the shorter the time frame, the higher the chances of generating noise, which may create issues in identifying trends.

April 26, 2024

Chart Patterns All Traders Should Know

When analyzing trading charts, certain formations appear repeatedly. Traders use these to identify potential trading opportunities. In this article, we’ll explore various chart patterns crucial for understanding the Indian stock market.

What is a Chart Pattern?

A chart pattern is a specific formation on a price chart that is repeated over time. By studying these patterns, traders attempt to predict future price movements based on historical outcomes. However, it’s important to note that past performance does not guarantee future results.

Types of Chart Patterns

Chart patterns can be broadly categorized into three types:

Continuation Patterns
These patterns indicate that the current trend will continue. Examples include flags, pennants, and triangles.

Reversal Patterns
These suggest that the current trend is likely to change direction. Examples include double tops, double bottoms, and head and shoulders.

Bilateral Patterns
These patterns indicate that the market could move in either direction, often due to increased volatility. Examples include symmetrical triangles.

Common Chart Patterns in Technical Analysis

Ascending and Descending Staircases
These are basic chart patterns that indicate a clear trend. An ascending staircase shows a market moving upward with higher highs and higher lows. Conversely, a descending staircase indicates a downward trend with lower lows and lower highs.
Ascending Triangle
An ascending triangle is formed when a horizontal resistance line meets an ascending support line. It usually signals a continuation of an uptrend.
Descending Triangle
A descending triangle occurs when a horizontal support line meets a descending resistance line. It typically indicates a continuation of a downtrend.
Symmetrical Triangle
This pattern forms when two trend lines converge symmetrically. It can signal a continuation of the current trend or indicate potential volatility leading to a breakout in either direction.
Flag
Flag patterns are short-term continuation patterns that resemble a small rectangle sloping against the prevailing trend. Bullish flags slope downwards, while bearish flags slope upwards.
Wedge
Wedge patterns are similar to flags but have converging trend lines. A rising wedge is a bearish signal, while a falling wedge is bullish.
Double Top
A double top is a bearish reversal pattern that appears after a significant uptrend. It consists of two peaks at roughly the same level, signaling a potential downtrend.
Double Bottom
A double bottom is a bullish reversal pattern seen after a significant downtrend. It features two troughs at similar levels, indicating a possible upward trend.
Head and Shoulders
This is a bearish reversal pattern with three peaks: a higher central peak (the head) flanked by two lower peaks (the shoulders). It signals a trend reversal from bullish to bearish.
Rounded Top and Bottom
These patterns are reversal signals. A rounded top suggests a shift from an uptrend to a downtrend, while a rounded bottom indicates a transition from a downtrend to an uptrend.
Cup and Handle
This bullish continuation pattern resembles a cup with a handle. The cup forms a rounded bottom, followed by a smaller consolidation (handle) before a breakout.

How to Trade Using Chart Patterns

Confirm the Pattern
Wait for a pattern to confirm itself by watching for a breakout in the expected direction. Volume indicators can help confirm the validity of a pattern.

Set Stop Loss
Always set a stop loss to manage risk. Place it at a level where the pattern is deemed to have failed.

Choose a Profit Target
Determine a profit target based on the height of the pattern. For instance, if a flag pattern has a height of 50 points, set a profit target 50 points beyond the breakout level.

Conclusion

Understanding and recognizing chart patterns can significantly enhance your trading strategy in the Indian stock market. By identifying these patterns, you can make informed trading decisions and better manage risks. Remember, while chart patterns provide valuable insights, no pattern is infallible, so always use risk management strategies.

FAQs

What is the most successful chart pattern?
The most successful chart pattern can vary, but many traders consider the head and shoulders pattern to be one of the most reliable.
Which chart pattern is most powerful?
The head and shoulders pattern is often considered the most powerful due to its strong predictive nature for trend reversals.
What is the most accurate trading pattern?
The double bottom pattern is often seen as highly accurate, especially for identifying bullish reversals.
Which chart style is best for trading?
Candlestick charts are generally considered the best for trading due to their detailed representation of price action.
Which is the most accurate chart?
Candlestick charts are regarded as the most accurate for technical analysis and trading decisions.
How many types of chart patterns are there?
There are three main types of chart patterns: continuation, reversal, and bilateral patterns.
How many types are chart patterns?
There are three types of chart patterns: continuation, reversal, and bilateral.
What is the most successful chart pattern?
The head and shoulders pattern is often cited as the most successful chart pattern.
Which chart is best for trading?
Candlestick charts are widely considered the best for trading.
How many types of charts are there in the stock market?
There are four main types of charts used in the stock market: line charts, bar charts, candlestick charts, and point-and-figure charts.
How to use a chart pattern?
To use a chart pattern, identify the pattern on the chart, confirm it with volume and other indicators, set a stop loss, and determine a profit target based on the pattern’s size.
Which chart pattern is best for trading?
The head and shoulders pattern is often considered the best for trading due to its reliability.
What is the chart pattern strategy?
The chart pattern strategy involves identifying specific patterns on price charts, confirming them, and making trades based on the predicted price movement.
Are chart patterns enough for trading?
While chart patterns are valuable, they should be used in conjunction with other technical indicators and risk management strategies for effective trading.
How to read a chart in trading?
To read a chart in trading, understand the basic components such as price action, timeframes, and volume, and identify patterns and trends.
What is a chart pattern analysis?
Chart pattern analysis involves studying historical price movements to identify patterns that predict future price movements.
What is charts analysis?
Chart analysis, or technical analysis, is the study of price charts to forecast future price movements based on historical data.
How do you make a chart analysis?
To make a chart analysis, select a chart type, identify trends and patterns, use technical indicators for confirmation, and interpret the data to make trading decisions.
What are the three types of chart patterns?
The three types of chart patterns are continuation patterns, reversal patterns, and bilateral patterns.
Why are chart patterns important?
Chart patterns are important because they help traders predict future price movements and make informed trading decisions based on historical price behavior.

April 24, 2024

What is T+0 Settlement : Overview And Benefits

In the evolving world of financial markets, every second counts. From traders seeking to capitalise on fleeting opportunities to investors aiming to swiftly reallocate their portfolio. Efficiency in transaction execution is crucial. This demand has fuelled the evolution of settlement systems in India and the much-awaited T+0 settlement is here, revolutionising the Indian trading landscape with lightning-fast transactions. But is it all sunshine and rainbows?

In this blog, we will explore its benefits for investors along with some important considerations before you jump in.

Overview

T+0 settlement refers to a system where trades in shares are settled on the same day they occur. In simpler terms, when you buy a stock, the shares are transferred to the buyer, i.e., your demat account and the seller receives the money immediately.

SEBI is launching T+0 in a beta version. This allows brokers to offer it optionally alongside the existing T+1 system in India.

Did you know?

As of April 2024, China is the only country with T+0 trade settlement cycle.

If we look back at history, the settlement cycle in the Indian stock market was shortened from T+5 to T+3 in 2002 and then further to T+2 in 2003. In 2021, Sebi introduced the T+1 settlement cycle in a phased manner, which was fully implemented from January 2023.

Currently, India operates on a T+1 settlement cycle, where trades are settled on the next business day.

With the introduction of the T+0 settlement, sellers will receive their money right away, and buyers get the shares they purchase on the same day. This allows for greater liquidity, flexibility, and faster settlement; allowing traders to react to the market movements more quickly.

It is a pilot program, launched on March 28, 2024, and applies to 25 stocks initially.

T+0 Settlement will happen in two phases:

In the first phase, an optional T+0 settlement cycle for trades till 1:30 pm is envisaged, with the settlement of funds and securities to be completed on the same day by 4:30 pm.
In the second phase, an optional immediate trade-by-trade settlement will be carried out for trades till 3.30 pm.

According to SEBI, a shorter settlement cycle can improve efficiency and transparency for investors, while strengthening the risk management for clearing corporations and the entire stock market system.

Operational Guidelines for T+0 Settlement

1. Eligible Investors

All investors can participate if they meet the requirements fixed by the Market Infrastructure Institutions (MIIs) like depositories and exchanges. These requirements could involve factors like risk management capabilities and transaction timelines.

2. Trade Timings

Currently, T+0 trading happens in a single session from 9:15 am to 1:30 pm.

3. Price Band

To manage volatility, T+0 trades occur within a price range of +/- 100 basis points compared to the T+1 market price for the same security. This range will be adjusted whenever the T+1 market price moves by 50 basis points.

4. Index Calculation and Settlement Price Computation

Trades happening within the T+0 settlement won’t influence index calculations or final settlement prices. Additionally, there won’t be a separate closing price specifically for T+0 trades.

Furthermore, the only method of early payment for T+0 sell obligations will be through the use of a locking mechanism. T+0 will not accept early payment via pool or regular pay-in instructions.

5. Fees/ Charges

All the charges/fees like Transaction Charges, STT, and Regulatory Turnover Fees that are applicable for T+1 settled securities will be applicable for T+0 settled securities.

Other key Points

T+0 trades are separate from T+1 trades. There is no netting of obligations between the two cycles.

T+0 trade prices will not be reflected in market indices or settlement price calculations, and separate closing prices won’t be determined based solely on T+0 trades.

There won’t be any Trading in T+0 settled securities on the following days:

On the Ex-date of any corporate action in the corresponding T+1 settled securities (including the scheme of arrangement).
On the day of the index rebalancing of the corresponding T+1 settled securities.
On the settlement holiday.

List of Stocks

As of April 2024, there are a total of 25 stocks available in T+0 settlement cycle:

Name of the Company
Ambuja Cements Limited	LIC Housing Finance Limited
Ashok Leyland Limited	MRF Limited
Bajaj Auto Limited	Nestle India Limited
Bank of Baroda	Nmdc Limited
Bharat Petroleum Corporation Limited	Oil & Natural Gas Corporation Limited
Birlasoft Limited	Petronet Lng Limited
Cipla Limited	State Bank of India
Coforge Limited	Tata Communications Limited
Divi’s Laboratories Limited	Trent Limited
Hindalco Industries Limited	Union Bank of India
The Indian Hotels Company Limited	Vedanta Limited
Jsw Steel Limited	Ltimindtree Limited
Samvardhana Motherson International Limited

Benefits for Investors

With immediate access to funds, investors can react more quickly to market fluctuations. They can sell a stock and use the proceeds to buy another one right away, potentially capturing short-term gains.
The increased ease and speed of transactions under T+0 could lead to higher trading volumes, benefitting investors who enjoy active trading.

Let us understand the T+0 settlement with the help of an example:

Consider a scenario where an investor buys 100 shares of company named “Pocket” through an online brokerage platform. With T+0 settlement, the transaction is processed immediately, and the investor’s trading account is debited for the buy amount + transaction charges while the shares are simultaneously credited to the buyer’s demat account.

Similarly, the seller’s trading account is credited with the proceeds from the sale instantly upon execution, and the shares are debited from the demat account.

Conclusion

To sum it up, T+0 settlement offers investors a faster and more dynamic trading experience, particularly those focused on short-term strategies. The quicker access to funds and reduced settlement risk can be beneficial for navigating the volatile markets and capitalising on fleeting opportunities.

However, investors should also be aware of the potential drawbacks, such as the possibility of increased volatility and the need for stricter discipline to avoid impulsive trades. It is also important to keep in mind that T+0 is a relatively new concept and there may be some unforeseen challenges. Investors should carefully consider the risks before actively trading in a T+0 environment.

Frequently Asked Questions (FAQs)

Is T+0 suitable for all investors?
While beneficial for day traders and short-term investors, it might not suit everyone because of higher volatility.
What are some drawbacks of T+0 settlement?
Some drawbacks are that higher transaction volume might result in increased volatility, and pressure to make decisions more quickly, which can result in impulsive trades and possible technical issues from clearing houses.
How many securities are available for T+0 settlement in the Beta phase?
A total of 25 securities are available in T+0 settlement as of April 2024.
Who can trade in the T+0 settlement?
All members eligible to trade in the Capital Market Segment shall be able to trade in T+0 settled securities.
I have traded in T+0; can I change the settlement type?
No. Orders for T+0 and T+1 settled securities are executed in separate series.

Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

April 21, 2024

What are Candlestick Patterns? Overview and Components

Investing directly in stocks can generate more income, but you’re probably next thinking about how to identify the best stock and make predictions about whether its value will increase or decrease. Candlestick patterns are used by both seasoned and new traders to make such predictions.

Use this blog as a beginner’s guide to candlestick patterns.

Overview

Candlestick patterns are used by technical analysts to forecast the direction of stock price movement. Every candlestick represents a different time interval, such as a minute, hour, day, etc.

Parts of Candlestick

There are four major components of a candlestick.

Open Price – This is the price at which a security begins trading in a time frame.
High Price – This refers to the highest price at which a security has traded in a particular time frame.
Low Price – This is the lowest price where the security has traded in a time frame.
Close Price – This is the price at which security last traded in a time frame.

Components of Candlestick

Body – The candle’s body refers to the area between the opening and closing price of a particular security over a time frame.
Wick – Also known as the candle’s shadow, the wick is the thin line extending above and below the body. It reflects the highest and lowest stock prices a stock touches over a time frame.

Colors of Candlestick

Green or White – This coloured candle shows that the close price is higher than the open price and thus reflects an upward or bullish trend in the market.

Red or Black – This signifies a bearish trend in security as it indicates that the closing price is lower than the opening price.

Importance of Candlestick Pattern

The candlestick pattern allows us to visually represent price movements.
Candlestick patterns can be used with technical indicators to provide a better insight into the movement of stock.
It assists the traders in managing their portfolio risk by helping them predict their exit.
The size and color of the candle help traders understand the market sentiment.

Types of Candlestick Patterns

Candlestick patterns can be divided into 2 parts

Bullish Pattern
Bearish Pattern

Bullish Candlestick Patterns

This pattern indicates that following a stock price correction, the stock price will rebound and begin to trend upward. Traders typically utilize candlestick patterns to enter a stock after it has shown an upward trend.

Bullish Engulfing Pattern

This candlestick pattern indicates the completion of a downward trend and a turnaround. It appears as two candles, the larger of which eats, the smaller bearish candle to become a bullish candle. It illustrates how momentum may shift from negative to positive.

Because the body of the bullish candlestick “engulfs” the entire body of the previous bearish candlestick, it is dubbed “engulfing”. This pattern is more likely to appear after a significant decrease in the stock price and when the stock is finding support at its crucial levels. A greater volume also implies that buyers are showing interest in the stock.

Morning Star Candlestick Pattern

Typically, this three-candle bullish pattern emerges toward the bottom of a downward trend. This pattern will show a lengthy bearish candle as the first candle, indicating that sellers have majority of the power over the stock, and a little body candle as the second candle, indicating that selling pressure may be easing. The last or third candle will be a lengthy bullish candle that closes above the middle of the first candle. This implies that buyers are trying to manipulate the price of the stock entirely. The size of the second small body candle boosts the pattern’s power. This pattern is more consistent when it proceeds in a long-term downward direction.

Three White Soldier

This bullish reversal candlestick pattern consists of three successive white or green candles. It usually happens close to the end of a declining trend and suggests an impending upward trend. All three white candles open higher than the previous day’s candle body and close at a higher price. All three candles should be free of an upper shadow, signifying continuous buying pressure. Every candle in the pattern should indicate a purchasing suggestion by having a body larger than the previous one. Through this pattern, it is thought that buyers are actively building momentum in the stock.

Bearish Candlestick Pattern

This pattern typically develops during an advance, when a stock hits its resistance level and the market has a correction in the price of the stock as a result of selling pressure or investor profit-booking.

Hanging Man

This unique candlestick pattern usually appears following an upward trend. It is known as a bearish reversal pattern, indicating that an uptrend is likely to halt and a stock price correction is likely to occur. The candle appears hanging since its top portion is small, its bottom shadow is long, and it reaches beyond the light’s body. On the other hand, there are either very few or no shadows in the upper portion. It emerges following a robust ascent and a rise in sales volume.

Shooting Star

The shooting star candlestick pattern, also known as the inverted hammer candlestick pattern, indicates that an upward trend in a stock is about to halt and a negative trend is about to begin. The lone candlestick in this pattern lacks a bottom shadow, albeit a small one is acceptable. It has a small body with a longer top shadow. This candle usually shows that sellers were applying pressure on the price, which prevented buyers from raising the price even if they tried.

Bearish Engulfing

It is seen as a strong reversal signal, meaning that the current trend is set to halt and there may be further downward movement. This pattern also consists of two candlesticks; the first is green and has a little body. By encompassing the whole range of the previous day’s candle, the second candle opens above the close and closes below the open price. In order for the pattern to exist, there must be a significant difference in size between the first and second candles.

Conclusion

The candlestick pattern is a valuable tool traders use to analyze market trends and forecast the direction of stock movement. But before making any investment, a trader needs to have a deeper comprehension of the candlestick patterns. Technical and fundamental analysis is also necessary to execute a good trade; thus, it’s important to realize that candlestick patterns are not always accurate.

Frequently Asked Questions (FAQs)

How do I use candlestick charts to make trading decisions?
A candlestick chart helps you identify the momentum and direction of the stock, which can help you make your investment decision. However, along with these charts, it is essential to use different technical tools and consider the overall market condition before executing any trade.
Why do candlesticks have different shapes and sizes?
The size of the candle changes with the price movement of the stock.
How can a beginner learn about the candlestick pattern?
A beginner’s first step is learning about the candlestick structure and identifying a few basic candlestick patterns. He can do this through books, online tutorials, educational videos, etc.
Who discovered the first candlestick pattern?
The candlestick pattern was first discovered by a rice trader in Japan, Homma Munesiha, in the 1700s.
What is a wick in a candlestick?
Wicks are shadows or lines that indicate where the price of a stock has fluctuated based on its opening and closing prices. A shadow represents the highest and lowest prices at which a security has been traded over time.

April 18, 2024

Introduction to Gift Nifty: A Cross-border Initiative

If you’re a trader who follows news about stocks, economic developments, and other factors that could affect the volatility of the Indian stock market. In that case, you’ve probably heard of the Gift Nifty, formerly known as the SGX Nifty, and you probably check it before Indian markets open. But you may be wondering why Gift Nifty is called that.
Therefore, we will explain in today’s blog why the SGX Nifty was renamed Gift Nifty.

Capital Market

The capital market is a place where financial instruments with long-term maturity are bought and sold. It provides a place where business houses and the government raise funds for different purposes.
The capital market is divided into 2 parts

1. Primary Market – The place where securities are issued for the first time to the investors.

2. Secondary Market – The place where the investors buy and sell issued securities.

Types of Secondary Market

1. Cash Market – It is a place where investors get the delivery of shares after purchasing them.

2. Derivative Market – The contract is traded in this market, and its value is derived from an underlying asset. A fixed and predetermined date is set for a derivative contract.

Stock Market Index

A stock market index shows how a certain set of stocks has performed. An index is made up of stocks that represent a specific industry or pool of securities. Utilizing the free float market capitalization weighting approach, the index is calculated.

A few examples of indices are the Bank Nifty, which consists of stocks from the banking industry, and the Nifty IT, which consists of stocks from the technology sector.

Did You Know?

Free float shares refer to publicly traded shares and are less than the total number of shares issued.

Nifty

The National Stock Exchange (NSE) launched the Indian market index, known as Nifty50, in 1996. Based on market capitalization, it shows the performance of the top 50 listed Indian firms. An investor can use this index to comprehend the overall market trend, which aids in the development of their trading strategy.

SGX Nifty

Singapore Nifty is another name for SGX Nifty. It was formerly traded in Singapore dollars. Based on SGX Nifty patterns, it helps Indian traders forecast market direction. Foreign investors trade in the derivative contract, giving them access to Indian markets and enabling them to trade the Indian stock market at their local time. Trading in the SGX Nifty usually takes place ahead of Indian market hours, allowing investors to respond to worldwide sentiments that may impact Indian markets.

Did you know?

Gift Nifty has been traded on the Gift City, Gujarat, India-based NSE International Exchange since July 2023. It was traded on the Singapore Stock Exchange before this.

Gift Nifty

Effective July 3, 2023, the SGX Nifty contract has been rebranded as Gift Nifty. About 7.5 billion dollars worth of derivative contracts were transferred from the Singapore Exchange to the NSE International Exchange, which is based in Gandhinagar, Gujarat’s Gift City.

Gift Nifty 50, Gift Nifty Bank, Gift Nifty Financial Services, and Gift Nifty IT derivative contracts are the four products that fall under the umbrella of the Gift Nifty.

Timing of Gift Nifty

Nearly 21 hours a day are spent trading on the Gift Nifty. It has two sessions for trading timing. The hours of the first session are 6:30 a.m. to 3:40 p.m. and the second session is 4:35 p.m. to 2:45 a.m. Trade sessions for Asia, Europe, and the United States occur simultaneously with Gift Nifty trading.

Gift City

Gujarat International Finance Tec-city, sometimes called Gift City, is an International Financial Service Center (IFSC) that was founded to establish a financial hub by providing top-notch infrastructure. It was founded by the Gujarat government, with backing from the Indian government, and it started operations in April 2015 after being granted permission by the Reserve Bank of India to function as an IFSC.

IFSCs operate in London, Singapore, Hong Kong, Dubai, and Frankfurt.

Significance of Shifting of SGX Nifty to Gift Nifty

According to the CEO of NSE, India is seeing a “watershed moment” with this trend. According to him, the rebranding will enhance India’s reputation abroad, leading to the purchase of foreign contracts that were previously transacted outside the nation. The financial sector in India has achieved a significant milestone as a result of SGX Nifty’s activity since traders now have wider access to the market and more liquidity. Other foreign organizations will be able to establish themselves in the city as a result of this change.

How does Gift Nifty impact the Indian Market?

The Gift Nifty is a leading indicator of how the Indian stock market will open because the Gift Nifty opens 2.5 hours ahead of the Indian market. The movement of the Gift Nifty helps traders decide whether to enter the market with a long position or short position. When comparing Gift Nifty to Nifty 50, it is more volatile.

If investors are uncertain about the direction of the market, they may employ Gift Nifty as a tactic to hedge their position and lower potential risk in the Indian market. Any developments in the world economy that take place after the Indian market closes and before it reopens the next day would affect the price of Gift Nifty.

Difference between Gift Nifty and Nifty

1. While the Gift Nifty is a futures contract based on Nifty, the Indian Nifty is made up of 50 shares.

2. While Indian retail investors are not allowed to trade in Gift Nifty, they can easily trade in Nifty.

3. Global market sentiments have a significant impact on Gift Nifty, but Indian economic conditions, policies, and corporate profits have a greater impact on Nifty’s movement.

4. Nifty trades in real-time, while Gift Nifty only gives the Indian market’s direction.

5. While Gift Nifty investments are made in dollars through NSE IX, investments on Indian markets can be made in Indian rupees.

6. The Indian market is open for trading from 9:15 to 3:30, but Gift Nifty is open for trading from 6:30 a.m. to 3:40 p.m. and from 4:35 p.m. to 2:45 a.m.

Conclusion

The move of the SGX Nifty from Singapore to Gift City, India, is a significant milestone. It gives any outside investor a chance to enter the Indian market. Since only foreign investors or non-resident Indians can invest in Gift Nifty, Indian investors are limited in learning how the market will go.

You must also consider your risk tolerance if you are investing in the Indian market and witnessing directional momentum from Gift Nifty.

Frequently Asked Questions (FAQs)

Can I trade in Gift Nifty in India?
Indian retail investors are not allowed to trade in Gift Nifty as only foreign portfolio investors and non-resident individuals are allowed to trade in it.
What is the new name of SGX Nifty?
The name of SGX Nifty changed to Gift Nifty on 3^rd July 2023.0
What is the time of Gift Nifty opening?
The Gift Nifty will open around 6:30 a.m. to 3:40 p.m. and reopen from 4:35 p.m. to 2:45 a.m.
How can I track the price of Gift Nifty?
You can search Gift Nifty in your trading platform’s search section and track the price there.
Can I purchase Gift Nifty in the cash segment?
No, only future derivative contracts are traded in Gift Nifty.

March 15, 2024

Category: Trading

What is Day Trading?

What is Swing Trading?

What is the difference between Day Trading Vs Swing Trading

Quick Summarization

Conclusion

Frequently Asked Questions (FAQs)

What is Day Trading?

What is Swing Trading?

Do Swing Traders make multiple trades?

Which trading Strategy is less risky?

What is the major difference between Day Trading and Swing Trading?

What are the Synthetic Futures?

Risks associated with Synthetic Futures

Benefits of Synthetic Futures

Example

Let us consider a few expiry scenarios:

Conclusion

FAQs

What is a Synthetic Futures?

Can I create Synthetic Futures apart from Options?

What are the advantages of Synthetic Futures?

What is one of the limitations of Synthetic Futures?

Is Counterparty Risk involved in Synthetic Futures?

What Is Nifty Next 50

Correlation with Nifty 50

Did you know?

Sectoral Weightage

Nifty 50 vs Nifty Next 50

Introduction of Derivative Contracts by NSE

Waiver of Transaction Cost

First Monthly Expiry Insight

Conclusion

Frequently Asked Questions (FAQs)

In which year was the Nifty Next 50 Index introduced?

Which sector has the highest allocation in the Nifty Next 50 Index?

Should I invest in Nifty Next 50 Index funds now?

Can I use the Nifty Next 50 Index derivative for trading purposes?

Is the stock in Nifty Next 50 a part of large-cap stocks?

PSU Stocks – An Overview

Why there was a fall in the PSU stocks?

Let us have a quick overview of RBI’s new guidelines for project finance:

Objectives of RBI Guidelines

Impact of the New RBI Guidelines

Conclusion

Frequently Asked Questions (FAQs)

How will new RBI guidelines on project finance impact borrowing costs?

Will new RBI guidelines on project finance affect borrowers?

Can RBI’s new project finance guidelines slow down project financing?

Are project finance guidelines released by RBI the final one?

When will RBI’s new guidelines for project finance come into effect?

ICICI Securities – Brief

Why Retail Investors are not in favour of Delisting

Reasons for Delisting of ICICI Securities

Delisting – An Overview

Conclusion

Frequently Asked Questions (FAQs)

Why ICICI Securities is getting delisted?

Did ICICI Bank take this decision because of the poor performance of ICICI Securities?

Did everyone agree with the delisting?

What will happen to the shareholders of ICICI Securities?

Will this delisting affect the stock price of ICICI Bank?

Price Action Overview

Evolution of Price Action Analysis

How to use Price Action Analysis

Advantages of Price Action Analysis

Disadvantages of Price Action Analysis

Conclusion

Frequently Asked Questions (FAQs)

What is a Price Action analysis?

What do price action traders focus on?

Is price action challenging to learn?

Do I need special software for price action analysis?

Is price action analysis good for day trading or long-term investing?

What is a Chart Pattern?

Types of Chart Patterns

Common Chart Patterns in Technical Analysis

How to Trade Using Chart Patterns

Conclusion

FAQs