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Tag: beginner trading guide

  • Getting Started with Algo Trading: A Beginner’s Guide

    Algorithmic trading, sometimes known as “algo trading,” is a type of trading where trades are made based on mathematical models using computer algorithms. Since it enables traders to execute transactions more rapidly and accurately than manual trading techniques, this sort of trading has grown in popularity in recent years. However, algo trading might appear difficult and high-level to newbie traders. We’ll go through what new traders need to know about algo trading in this blog article.

    Algo trading is a sort of trading in which trades are carried out using computer algorithms based on mathematical models. The algorithms are made to quickly assess market data, spot trading opportunities, and complete trades. Both institutional and retail traders utilise algorithmic trading to transact in a range of financial assets, such as stocks, bonds, currencies, and commodities.

    Benefits of algo trading: Compared to manual trading methods, algo trading has a number of advantages. Algorithmic trading, for instance, may carry out trades more quickly and accurately while also assisting traders in avoiding the emotional biases that might influence human trading decisions. Trading with algorithms also enables investors to profit from market opportunities that human trading techniques could overlook.

    Algorithmic trading provides a number of advantages, but it also has a number of hazards. Algo trading, for instance, may be impacted by market volatility and prone to hacking or computer faults. Additionally, market circumstances can have an impact on algo trading, and traders may need to modify their algorithms to account for these changes.

    Starting with algo trading: It’s critical to have a firm grasp of trading principles and financial markets if you’re interested in beginning with algo trading. Additionally, you want to become acquainted with the tools and computer languages utilised in algo trading, including as Python, R, and MATLAB. It’s crucial to have a firm grasp of market data and to create a strong trading plan that takes your risk tolerance and financial objectives into consideration.

    Hiring a developer: Algo trading may be difficult and complicated, particularly for novice traders. It could be better to talk to a developer who can offer advice and help if you’re new to algo trading. A specialist can guide you as you traverse the world of algo trading by helping you create a trading strategy, pick the appropriate software and tools, and get continuing assistance.

    In conclusion, traders aiming to execute transactions more rapidly and accurately may find algo trading to be a potent instrument. For novice traders, it’s crucial to be aware of the advantages and disadvantages of algo trading as well as to become familiar with the instruments and strategies employed in this market. New traders may succeed in algo trading and benefit from its numerous advantages with the correct information and assistance.

  • The Ultra-Beginner Guide For Expiry Date

    An expiry date usually refers to the last day when a product or service can be used. Expiry marks the conclusion of a contract or an asset in the market. When trading in the derivatives market, such as futures and options contracts, the expiry date refers to the contract’s final date after which it will no longer be valid.

    When a derivatives contract reaches its expiration date, it has a variety of consequences for derivative traders as well as the Indian stock market as a whole.

    Before we get into the basics of expiry trading, it’s important to know that expiry day trading is extremely risky and it takes a certain level of experience before you can become profitable. However, if you would like to get started with options and futures analysis, you need access to the best trading platform from one of the best online share brokers in the country. At Zebu, we give you all of this and more – we also offer the lowest brokerage for intraday trading.

    The meaning of derivatives contracts

    Futures and options contracts on stocks, commodities, currencies, and other assets are examples of derivative contracts. Futures and options are similar in that they both convey a guarantee to buy or sell an asset at a certain price at a future date. But that’s where the resemblance ends.

    You are not obligated to keep your pledge under an Options contract. You can simply choose to ignore the contract, and it will end on the agreed-upon date. A Futures contract, on the other hand, requires you to complete the deal by the expiration date. You must not allow the contract to lapse. This is what distinguishes futures from options.

    The Indian stock exchange has a predetermined standard expiry date for the F & O market to remove any confusion among traders. Every month on the last Thursday, we call it an expiry day.

    For example, if you buy a futures contract on January 14th, 2022, the contract will expire on January 27th, 2022, the last Thursday of the month.

    If the final Thursday of the month is a trading holiday, meaning the stock market is closed on that day, the previous day, i.e. the last Wednesday of the month, is the expiry date.

    Please note that Nifty and Bank Nifty indices have weekly expiries which happen every Thursday of the week. And stocks have a monthly expiry which is the last Thursday of the month.

    What happens during the expiry date?
    Here’s what occurs when a derivatives contract reaches its expiration date in different sorts of contracts —

    Options Contracts

    You are not obligated to fulfil the contract in the case of options contracts. As a result, if the contract is not used before the expiration date, it will simply expire. The seller forfeits the premium you paid to purchase the option. You don’t have to pay any additional fees.

    Futures Contracts

    You would have to fulfil the deal on the expiration date if you were to use a futures contract. This happens in two ways.

    You can purchase a new contract to replace the existing futures contract. Assume you purchased a futures contract to purchase 1000 shares of XYZ Company. You can buy another futures contract to sell 1000 shares of XYZ firm on the expiration date.

    The first contract to sell the shares is nullified by this new contract, which will now be in your position. You would have to settle the price discrepancy, if any, in such cases. The price difference is due to the difference in the futures contract’s price. Because stock prices fluctuate every day, the price of the futures contract fluctuates as well. As a result, the price of the futures contract you buy first may differ from the price of the futures contract you buy later. In such circumstances, you’ll have to pay the price difference in order to complete your contract by the expiration date.

    The impact of the stock’s expiration date on its price
    Due to the fact that the expiry date signifies the end of F&O contracts, there is a lot of volatility on the stock exchange as a whole. The stock market may turn bullish or bearish depending on the type of futures contracts settled on the expiry date.

    Arbitrage trading also has an impact on stock market prices towards the expiration date. Arbitrage trading is when F&O traders want to profit from the small price difference in the same security’s contracts on different expiry dates. They might buy on the secondary market and sell on the F & O market, or the other way around. Price changes from this buying and selling have an impact on the stock market as a whole. However, this effect is just temporary, as the stock market corrects itself once the expiration date has passed.

    In Conclusion

    Know the expiry date of the derivative contracts you buy if you trade futures and options. The settlement of your contracts is determined by the expiry date, and you should be aware of what happens on that date. Also, as a stock trader, you should be aware of the impact of the expiry date on the overall stock market. Due to increased volatility around the expiry date, you can either book short-term profits or avoid trading altogether to reduce losses.

    As we mentioned before, this is the most basic introduction to what happens on an expiry day. In future articles, we will get into more details about a few popular expiry day strategies. For now, you just need to understand that to get started with futures and options analysis, you need the lowest brokerage for intraday trading as well as the best trading platform. As a leading online share broker, we at Zebu have created the perfect trading platform with an extensive amount of features to make trading simply for you.

  • Leading And Lagging Indicators For Beginners

    For those who trade using technical analysis, technical indicators are the core of their trading.

    Whether you day trade or swing trade, these indicators are extremely important. Technical analysis’ principal purpose is to forecast future price movement. Understanding the art of trading patterns and indicators will help you in understanding them better.

    Technical indicators are separated into two types: leading and lagging indicators.

    In this post, we’ll look at both types of indicators to see which one best suits your trading style. But before we begin, let’s talk about access to indicators. When you start trading, it is important to have one of the best trading accounts from the best share broker in terms of the number of indicators you can use. Zebull Smart Trader is a high-end online trading platform that gives you the widest range of leading as well as lagging indicators for you to choose from. With us, you can execute any complex strategy with any number of indicators.

    What is a Leading Technical Indicator, and how does it work?

    Leading indicators are used to anticipate future price changes and provide a trading advantage to the trader.

    Leading indicators provide an early signal of entry or exit and show price momentum over a period of time that is utilised to calculate the indicator.

    The following are some well-known leading indicators:

    Stochastic Oscillator
    RSI
    Volume
    William % R
    Volume profile

    Because volume gives us the buying and selling pressures in the market, it tends to indicate changes even before the price moves. For example, when a market top is formed, you can clearly see an exhaustion of buyers. If that is followed by an increasing number of sellers, then you can assume that the trend has reversed.

    What is a Lagging Technical Indicator, and how does it work?

    Lagging indicators are price reversal indicators that follow a trend and predict price reversals.

    These are especially useful if you follow a trend following strategy.

    They don’t predict future price changes; instead, they just notify us whether prices are rising or falling so that we can invest accordingly.

    Despite the delayed feedback, many traders prefer lagging indicators since they let them trade with greater confidence by confirming their results.

    Before buying a stock, traders usually employ two or more lagging indicators to confirm price movements.

    Examples of lagging indicators:

    Moving Averages
    Moving averages convergence and divergence

    Let’s look at an example:

    A 50 period 200 period moving average is a typical example of a lagging indicator setup.

    When the 50 MA crosses below the 200 SMA, a security is said to be bearish. When the 50 MA crosses above the 200 SMA, a security is considered to be bullish.

    If you consider the first signal from the moving average crossover and execute your trades, they might end up in a loss.

    The key reason for this is that by the time the price moves lower and the SMAs respond, the price would have already dropped significantly and reversed.

    Similarly, when we receive a bullish crossover indication, it is better to wait for a pullback before entering a trade.

    What is the difference between the two types of indicators?

    Signal Generation
    Leading indicators provide trading signals when a trend is about to begin, whilst lagging indicators track price movements.

    Time Periods to Avoid
    Leading indicators attempt to predict price using a shorter timeframe and, as a result, trail price fluctuations.

    Lagging Indicators provide signals after a trend or reversal has occurred. They can be used to determine the direction of the trend.

    Drawbacks of leading and lagging indicators

    Leading indicators are prone to false signals because they react quickly to price changes.

    Lagging indicators take a long time to react and might also send out false signals.

    Using Leading and Lagging Technical Indicators in Combination
    Traders can use a combination of a leading and lagging indicator to create a better trading system. For example, you can use RSI and Moving average crossover. In this strategy, you can wait for a buy/sell signal from RSI (a leading indicator) and wait for a confirmation from the moving average crossover to initiate a trade. Combining leading and lagging indicators can be a simple but powerful way to trade.

    Creating a trading strategy is an art. You need the best trading accounts from the best share broker to give you access to all types of leading and lagging indicators. This is exactly what we offer at Zebu. We have created a highly advanced online trading platform that helps you take the best possible trades with a host of indicators. To know more about Zebull Smart Trader, please get in touch with us now.

  • Strangles And Straddles For Beginners

    Both strangles and straddles are options techniques that allow an investor to profit from big price changes in a company, whether the stock moves up or down. Both strategies involve purchasing an equal number of call and put options that expire on the same day.

    Option prices are intrinsically related to the price of something else, making them a sort of derivative security. You have the right, but not the responsibility, to buy or sell an underlying asset at a specified price on or before a specific date if you purchase an options contract.

    A call option allows the holder to purchase stock, whereas a put option allows the holder to sell shares. An option contract’s strike price is the price at which an underlying stock can be purchased or sold. Before a position can be closed for a profit, the stock must rise above this price for calls and fall below this price for puts.

    Before we give you an explainer of the strangle and straddle, it is important to know that you need to analyse them for maximum profits. At Zebu, one of the fastest-growing brokerage firms in the country, we have created the best Indian trading platform with the lowest brokerage for intraday trading. If you would like to simplify your option trading game, we are here to help you out.

    Options Straddle

    A straddle trade is one technique for a trader to profit on an underlying asset’s price change. Let’s imagine a company’s latest earnings are due in three weeks, and you have no idea whether the news will be positive or negative. Because the stock is expected to go dramatically higher or down when the results are published, the weeks leading up to the news release are an excellent opportunity to enter into a straddle.

    Let’s pretend that the stock is trading at Rs 1000 in April. Assume the price of a Rs 1000 call option for June is Rs 20 and the price of a Rs 1000 put option for June is Rs 10. A straddle is created by buying both the call and the put options. If the lot size is 200, your total investment would be (20+10)*100 = Rs 3000.

    The straddle will gain value if the stock rises (because of the long call option) or falls (due to the short call option) (because of the long put option). Profits will be achieved as long as the stock price swings in either direction by more than Rs 30 per share.

    Profits will be achieved as long as the stock price swings in either direction by more than Rs 30 per share. Since ATM options are bought, this strategy is called a long straddle. Traders with large capitals often choose short straddles to make additional income.

    In short straddle, instead of buying the ATM call and put options, traders sell them. It is a directionally neutral strategy.

    Options Strangle

    The improvisation of the strangle over the straddle mostly helps in lowering the strategy cost. But, the number of points required to break even rises.

    The strangle requires the purchase of OTM call and put options. Remember that the OTM strike is usually cheaper than the ATM strike, therefore setting up a strangle is less expensive than setting up a straddle.

    For example, if the Nifty is currently trading at 7921, we’ll need to buy OTM Call and Put options to put up a strangle. Keep in mind that both options must have the same expiration date and underlying.

    Assume you purchase OTM options with a 200-point spread. As a result, you would purchase the 7700 Put option and the 8100 Call option. These options are currently trading at a price of Rs 20 and 30, respectively. The total premium for executing the strangle is 50. Nifty must expire above 8100 or below 7700 to be profitable in this method.

    When you sell OTM options, then it is called a short strangle. It is a neutral strategy that is profitable if the underlying expires between the two strikes of the OTM options.

    While this is just an overview of the strangle and straddle, two of the most common options trading strategy, we will get into a detailed look at the strategies with respect to moneyness as well as option greeks in a later post.

    As we mentioned before, trading strangles and straddles requires the best Indian trading platform and the lowest brokerage for intraday trading. As one of the best brokerage firms in the country, we have created a powerful trading platform that makes option analysis easy for you. To know more about its features, please get in touch with us now.