International corporate heavyweights have set up shop in India because of the country’s size, the scope for innovation, and the soundness of its financial sector. From a highly regulated environment to a more liberalised one, India’s robust and stable financial sector has gradually evolved.
It has been ranked as the third most attractive investment location in the world by UNCTAD’s World Investment Prospects Survey. Due to the country’s liberal rules, the Indian market offers enormous potential for profit.
Furthermore, currency trading in India is becoming the go-to place for traders from around the world to transact day and night, thanks to this dynamic environment. In India, the foreign exchange market, also known as the currency trading market, serves as a marketplace for the exchange of foreign currencies.
Market information in a nutshell
The NSE, BSE, MCX-SX, and United Stock Exchange all offer trading platforms for currency futures. With Zebu’s lowest brokerage fees, and our credibility as one of India’s best share market brokers, we guarantee that you will have access to the best trading accounts in the country.
The currency market is open from 9:00 a.m. to 5:00 p.m. on weekdays. For currency trading, there is no cash or equity form, like we use in the Indian stock market. To begin trading, you will need a broker, but you will not require a DEMAT account in order to do so. In the foreign exchange market, we can only deal in the futures and options segments.
Forex trading in India has shown an upward trend with the introduction of futures derivatives. Individuals and investors were previously only able to trade with banks and major corporations before this change. Both banks and enterprises were given greater freedom to store and trade foreign currencies as a result of India’s currency liberalisation. Derivative products were necessary as trading laws were loosened to facilitate the integration of global and local economies.
What is the rationale for using derivatives to manage risk?
As with other financial instruments, the value of a currency fluctuates widely in response to changes in the broader economy and politics. Inflation, foreign commerce, and interest rates are all critical, but the most critical is political stability. Governments can influence the value of their currencies by intervening in the foreign exchange market through the actions of their central banks. They either flood the market with their own currency to reduce the price or buy to raise the price in order to make a statement. The currency trading market in India can also become unstable due to large orders by large firms. Foreign exchange supply is increased when a country’s exports rise. Additionally, market participants’ expectations of national economic performance and their faith in the economy of their respective countries also play a role.
Currency trading in India could be severely disrupted as a result of these operations. For a long time, any one entity can’t control India’s currency trading market because of its enormous size and volume.
Because of their enhanced transparency, liquidity, counter-party assurance, and accessibility, exchange-traded currency futures are an ideal hedging instrument.
Due to its size, volume, and frequency of trade, currency trading in India is a substantial contributor to the national economy. As businesses of all sizes make up the majority of the economy, everything that helps them grows the national economy. Currency trading can be a rewarding endeavour if you keep abreast of global market developments.
You can explore these options and more with Zebu. Our lowest brokerage fees allow you to purchase the index fund of your choice effortlessly, making yours one of the best trading accounts for currency trading.
The Basic Rules Of Position Sizing Most successful traders, whether they trade the forex, index, equity, or commodities markets, vouch for the relevance of position sizing in their performance.
And why shouldn’t they? Without proper position sizing strategies, you could be putting a large portion of your trading capital in danger. Finally, the higher the risk you incur in each trade, the more likely it is that your trading account will be closed.
While it is true that the trade might sometimes provide the much-desired large win, most skilled traders will tell you that it is advisable to limit your position size rather than raise your risk needlessly.
Before you secure your trades with position sizing rules, ensure that you use the best broker for trading with the lowest brokerage on offer. Zebu empowers your online stock trading journey with a state-of-the-art trading platform as well.
Let’s take a look at what position sizing is and why it’s so important, as well as the best position sizing tactics you’ll need to learn in order to enhance your trading.
What exactly is position sizing?
Setting the correct transaction size to buy or sell a certain instrument, or determining the Rupees amount that a trader will use to start a new trade, is the most basic definition of position sizing.
It may appear easy, but it can be rather complex. Before you enter a trade, you should understand how much risk you are incurring and how it will affect your trading account.
Furthermore, traders must regularly review their positions to ensure that everything is under control. Keep in mind that markets move swiftly! Furthermore, traders must keep margin requirements and margin stop out levels in mind.
What is the significance of position sizing?
As you can expect, opening positions with arbitrary position sizes or based on gut instinct will result in disaster. Position sizing is concerned with avoiding excessive losses. If you have a good risk management strategy and stick to it, you are unlikely to lose a large amount of your cash on a single trade. It will also provide you with an opportunity to retain your focus on your account as a whole and all your open positions. It is especially common for short-term traders who must react rapidly to new developments to lose oversight and forget how much risk they already have running before opening fresh positions. This is why it is so important: a successful trader is also a good risk manager.
However, position sizing is about more than just avoiding excessive losses. It also provides you with the opportunity to improve your performance. A risk-averse trader who is only ready to risk a small fraction of his capital must realise that he will never generate significant returns. As you can see, position sizing is all about striking the appropriate balance – allowing yourself to maximise profits while avoiding excessive losses.
Proper position sizing along with profit-taking tactics can assist traders in developing the optimal strategy for entering and leaving all trades.
How do you calculate the size of your position? Let’s have a look at a handful of popular position sizing approaches you can use to improve your trading and make better use of position size.
Position sizing strategies that work well
1. Fixed rupee value
The simplest method to include position sizing into your trading strategy is to use a fixed Rupees amount. This may be especially useful for those who are new to trading or have a little quantity of capital. All you have to do is set aside a certain amount of money for each trade you make.
For example, if you have Rs 10,000 in trading capital, you could want to set aside Rs 1,000 for each trade. That is, instead of investing the entire cash into one deal, you can divide it into ten.
This instantly reduces the amount of risk you take with each trade. It will also aid in the preservation of your capital if the first few deals you make turn out to be losses.
2. Fixed percentage
The most often utilised position sizing approach by traders is a fixed percentage risk each trade. On each trade, you put a small portion of your total cash at risk.
Depending on the financial asset you’re trading — for example, equity, metals, oil, or indices – most successful traders would agree that a 1 – 2 percent per trade risk is a decent starting point.
If you employ the set % risk per trade strategy with a Rs 10,000 trading capital, you should only risk Rs 100 – Rs 200 per trade.
The beautiful thing about this method is that it forces you to focus on the percentage risk rather than the monetary value. Then, as your capital rises from Rs 10,000 to Rs 20,000, your 1% risk every trade rises from Rs 100 to Rs 200. Similarly, if your capital falls, you still risk 1%, but it will be a smaller Rupees amount.
If you don’t, you’ll quickly discover that the large risks you incur in each trade will quickly deplete your trading cash.
3. Use of leverage
While leverage is one of the primary draws for traders to the equity, index, and commodities markets, we all know that leverage can be a double-edged sword. It has the ability to amplify both successes and defeats.
Many trading platforms give leverage ranging from 3:1, 5:1, 10:1, or even 20:1.
However, when it comes to leverage, keep in mind that you do not have to employ the utmost level of leverage. Just because it’s on sale doesn’t mean you have to take advantage of it.
It is preferable to utilise less leverage to ensure that you are limiting your risk exposure.
If you use too much leverage, you increase your chances of experiencing a capital loss or a margin call if a trade goes against you.
4. Kelly’s Criterion
Let’s have a look at the Kelly Criterion formula:
W − [(1-W)/R] = Kelly %
It computes the percentage of your account you should put at risk (K per cent). It is equal to your trading strategy’s historical win % minus the inverse of the strategy win ratio divided by your profit/loss ratio.
The proportion you receive from that equation represents the stance you should take. For example, if you get 0.05, you should risk 5% of your capital per trade.
These are 4 of the very basic position sizing rules and points to keep in mind while trading. In a world where trading is one of the riskiest businesses to be in, following the rules of position sizing can drastically improve your risk management.
As we mentioned before, we at Zebu offer the lowest brokeragefor trading and, as a result, have emerged at as one of the best brokers for trading. Take your online stock trading to the next level with us – please get in touch with us to know more.
Every trader would love to trade a well-funded trading account – with a minimum balance of INR 10,00,000 – but only a small percentage of us are able to do so. Most traders, especially those who are starting their trading careers, start with a small account.
Trading with a limited account requires tight risk management and money management due to the lack of a cushion for mistakes or unexpected losses. For example, if a trading account only covers its minimum margin by Rs 20,000 and suffers a Rs 30,000 loss, the account will become untradeable until more funds are deposited.
When it comes to online stock trading with a smaller capital, you need the best trading platform to back up your trading decisions. As one of the best share market brokers, we have created an online platform that is fully loaded with indicators, scanners and other tools to make trading easy.
Here are some pointers for people with a modest trading account.
The Constraints of a Small Account
Trading with a small account is far more difficult than trading with a large account. Large accounts are protected against mistakes, unexpected losing streaks, and even bad traders, but small accounts do not have this protection.
Even if you can afford losing streaks, trading with a small account has psychological concerns that make it difficult to trade well. For example, if a trader knows that they can only afford one loss in their trades, their account can be untradeable (due to a lack of needed margin), and the pressure to make a profitable trade is great.
There are also differences in what a small-account trader is legally permitted to do. Large accounts can trade every available market, however, small accounts may only be allowed to trade specific markets in specific ways.
Large accounts permit more flexible trading, such as several contracts and short positions, whereas small accounts may be restricted to long positions that can be covered with cash.
Here’s our advice
With all of the difficulties, it might appear that trading a small account profitably is impossible. However, this is not the case, and many traders, including experienced traders, trade small accounts profitably.
Using Leverage in Trading Trading with leverage gives traders the opportunity to make upto 4X in profits for the trades they are right about. When day trading individual stocks, for example, you can normally trade up to four times the amount of funds in your account.
Trading the same underlying stock in the options requires only about 15% of the trade’s value in cash.
Trade with Caution
Traders with well-funded accounts can afford to take high-risk bets, such as those with substantial stop losses in relation to their targets. Small-account traders must be extra cautious, ensuring that their risk-to-reward and win-to-loss ratios are calculated and used effectively.
Follow the 1 per cent risk rule
Trading with the 1% risk rule gives a small account the same cushion (against mistakes and unexpected losses) as a large account. Because it is a very successful risk management approach, many expert traders adhere to the 1% risk rule regardless of the size of their trading accounts.
In conclusion
Some traders are sure that trading accounts with insufficient capital cannot be profitable. This assertion is false. Small trading accounts may be more difficult to trade successfully, but if done right, there is no reason why they cannot be profitable.
Small account traders can make a solid livelihood from trading, but they must manage the stress that is often associated with undercapitalization. The biggest focus should be on risk management and its strategies, especially the 1 per cent risk rule. With these considerations in mind, you may be able to grow your capital considerably.
Profitable trading is one approach to grow a modest account, but if you’re conservative and follow the 1 per cent risk limit, the growth may be slower than you’d want. You could pursue higher risk/higher return transactions, but this exposes you to the chance of losing your entire account. Many traders with a small account may discover that they require additional sources of income, such as a day job, in order to substantially increase capital.
When it comes to online stock trading and growing your trading account, another important aspect for you to consider is the shar market brokers you trust. At Zebu, we offer the best trading platform that is packed with features that you will help you make better trading decisions. If you would like to know more, please get in touch with us now.
How To Backtest Your Strategy Manually There are numerous applications and trading platforms available now that allow you to backtest your strategy. However, you may not always have these tools available, or you may want to see the complexities of your strategy in action. The good thing is that you can independently backtest your strategy. All you need is your trading strategy and historical data to accomplish this.
Even if you do it manually, backtesting a plan is not difficult. However, employing a programme or a platform makes things much easier.
What exactly is backtesting?
Backtesting is the foundation of developing trading techniques and edges. During a backtest, a new approach is tested against historical data to determine its effectiveness. This has a lot of advantages, such as being able to watch the plan in action and evaluating whether or not any of the parameters need to be changed in order for it to function.
If a trader’s backtesting provides positive outcomes, he or she may have faith in the approach. If a backtest does not produce acceptable results, adjustments will most likely be required. You might also find out that the strategy you devised isn’t worth pursuing.
While backtesting is a terrific idea, it must be done with extreme caution. As we’ll see later, it’s entirely feasible that a method that performed admirably in the backtest may fail miserably on real-time data. There are, however, solutions to this difficulty.
How to Backtest Your Strategy Manually
Backtesting is typically performed by those who are familiar with coding. Those who are unable to code must rely on a backtesting platform.
If you decide to manually test your approach, you can simply choose any chart that provides access to the indicators required for your plan. TradingView and MT4/MT5 now offer the finest free options. Let’s look at how to manually backtest your plan now.
Or, you can use your trading platform’s in-build charts as well. For example, Zebu comes with an impeccable trading platform that you can use to manually backtest your strategy. You can view charts in multiple time frames and use a host of indicators and screeners to backtest your strategy.
1. Develop the Strategy
Before you can backtest a strategy, you need to develop one in the first place. It is critical that you do not test half-heartedly since this would be a waste of your time.
Create a trading plan based on your understanding of the market. When you’re done, take a good, long look at it and try to examine each individual parameter. If something does not appear to be correct, make the necessary changes before proceeding to backtest. Your entry/exit signals, conditions, timeframe, and risk per trade are all important considerations.
After you’ve finished developing your plan, you may begin backtesting it.
2. Choose your charts
Choose the market in which you want to backtest your data. Once you’ve found the market, open the chart you’re using and choose a timeframe from the past.
Traders typically backtest their method for at least a few years. While some traders believe that scrolling back to the beginning of the chart is necessary, this is not the case. You should be alright as long as you can backtest your technique over a prolonged period of time. A sample size of around ten years gives enough history to build a reasonable sample size.
Then, using the tools on your chart, pull up all of the indicators you’ll need for your trades. Ascertain that your chart is properly configured with all of the trading tools that will be required during the backtest. You are now ready to begin your backtest.
When you choose a share broker for backtesting and trading, ensure that you choose the best online trading platform like Zebu. Our charts, along with the wide range of indicators we have can help you formulate the most complex as well as easy trading strategies and backtest them manually. In addition to this, we also support your trading with the lowest brokerage for intraday trading.
3. Perform Manual Backtesting on Your Strategy
You might have already figured out what to do next! Backtest your method by moving the chart ahead bar by bar. This entails recording trades anytime your trading method suggests it.
Recording your trades is actually pretty simple, and it can be done using either a physical journal or software like Microsoft Excel.
It is not difficult to keep track of your trades, but it can be time-consuming. When a trade signal is generated, all you need to do is record the entry point, stop-loss, date and time, and any other information that may be relevant to the trade. Many traders like to mention other nuggets that their trading method is informing them, such as the risk to reward ratio, and so on.
When you’re ready to exit the trade, make a note of your return as well as the exit point. After that, you simply repeat the procedure. Backtesting, as you may have guessed, can be tedious and time-consuming. Remember that backtesting a decade of data will most likely take at least a few hours. As a result, when you sit down to backtest a technique, make sure you have the time.
The Drawbacks of Manual Backtesting
The issue with manual backtesting is that you can make mistakes when tracking the data. In addition, when backtesting your technique, there is a psychological component involved. Because you can see the data ahead of you, you may not wind up executing the trades that your method suggests.
People usually try to excuse this by saying, “I wouldn’t have made that trade in real life.”
Simply do not do this! If a trade fulfills your criteria, make a note of it!
If you are able to authentically and honestly note down your trades while backtesting manually, then you do not have to sprint for expensive programs and data plans to backtest. Your journal or excel sheet would suffice.
As we have mentioned before, when you choose to start with manual backtesting, you need an online trading platform that accommodates every complexity of your trading system. As a leading share broker, we at Zeu have created an online trading platform that comes with a host of indicators to help you formulate and backtest a strategy. In addition to this, we also support your trading efforts by giving the lowest brokerage for intraday trading.
Large Cap vs Mid Cap vs Small Cap: Key Differences That Actually Matter
One of the decisions that new traders must make is whether to be a discretionary or a system trader. Discretionary trading is trading that is based on a decision. Based on current market conditions, the trader determines which deals to execute. System trading, on the other hand, is based on rules. The trading system determines which deals to execute; current market conditions are irrelevant. Discretionary and system trading can both be profitable. That is, the decision should be made based on the trader’s personality. Some traders may immediately determine which kind of trading is best for them; others may need to try both sorts before deciding. Whether you are a system trader or a discretionary trader, we provide you with the best trading accounts to choose from. As one of the top brokers in share market, we provide one of the lowest brokerage fees to help you make as many trades as you would like for the day.
The Benefits and Drawbacks of Discretionary Trading The trader picks the transactions to make based on the information available at the moment in discretionary trading. A discretionary trader can (and should) nonetheless stick to a trading plan with well-defined trading guidelines. They will use their discretion in accepting the trade and managing it. A discretionary trader, for example, may study their charts and discover that all of their requirements for a long trade have been met. Nonetheless, they may decline to make the trade since the volatility for the day is too low, and so the price is unlikely to reach the profit target for the trade. The benefit of discretionary trading is that it is responsive to market situations. You may have an excellent trading system, but if you are aware that it performs poorly in particular market conditions, you can avoid those trades. Alternatively, if you see your strategy performs well in other conditions, you might increase your position size somewhat during such times to optimise gains. The disadvantage of a discretionary method is that many traders are prone to second-guessing themselves. They may be inept at determining when to trade and when not to trade; consequently, a more methodical approach would be preferable. Discretionary systems are vulnerable to trader psychology; being overly greedy or scared can quickly erode the profitability of a discretionary trading system.
System Trading Benefits and Drawbacks The choice to make a trade in system trading is totally dependent on the trading system. System trading choices are final. They do not allow the dealer to decline a trade at his or her discretion. If the criteria are met, the trade is executed. A system trader may study their charts and discover that their trading system’s requirements for a short trade have been met. They will complete the transaction without any further deliberation. This is true even if their “gut” tells them it isn’t a good trade. System trading techniques can frequently be automated since the rules are so well defined that a program can carry them out on the trader’s behalf. Once a program has been built to determine when the requirements of a trading system have been completed, the program can make the trade without the trader’s involvement. This involves entry, management, and exit. The system trading approach has the advantage of being immune to the trader’s psychological whims. The system accepts all trades regardless of how the trader feels. The disadvantage is that systematic trading is not very adaptable. Trades are always accepted as long as the terms are met, even in less advantageous conditions. More rules can be introduced to the system to help overcome this problem, however, this often results in the loss of some winning trades.
Discovering Your Personal Style Discretionary trading and system trading both aim to make money, but in slightly different ways. The two systems may even make many of the identical trades. Each will most likely be better suited to different types of traders. Discretionary trading is ideal for traders who desire complete control over their trading decisions, including entry, stop loss, and exit. Discretionary traders frequently feel uneasy about handing over total management of their trading to software. Discretionary trading is also for folks who just want to adjust their transactions to current market conditions. System trading, on the other hand, is ideal for traders that value speed, precision, and accuracy in their trading. System traders have no reservations about using a computer program to make trading choices for them. They may cherish the sense of diminished responsibility that this provides.
Can You Use Both Methods? It is feasible to be a discretionary trader who employs system trading. However, it is not viable to be a system trader who also employs discretionary trading. A discretionary trader, for example, may use a trading system for their entries and take every deal that the system identifies. They can then manage and exit their deals at their leisure. A system trader does not have this option because they must adhere to their trading method exactly. If a system trader makes a decision without following the rules of their strategy, then he/she becomes a discretionary trader. All of your trades, whether you are a discretionary trader or a system trader, need to be complemented by the lowest brokerage and the best trading accounts you can find. As one of the top brokers in share market, we at Zebu offer low brokerage trading accounts and a high-end trading platform to execute your strategies. To know more, please get in touch with us now.
From Rs 5.54 lakh crore to Rs 7.50 lakh crore, the target for capital expenditure (capex) grew by 35.4%. The FM said that India’s GDP growth in FY23 is the highest of all major economies, and we are now in a strong position to deal with any challenges that come our way. According to her, the goal is to complement macro-growth with micro-all-inclusive welfare, digital economy and fintech, tech-enabled development, energy transition, and climate action. She also mentioned that ECLGS cover has grown by Rs 50,000 to Rs 5 lakh crore. In this year’s budget, the top priorities are: PM Gati Shakti; inclusive development; productivity enhancement; sunrise opportunities; energy transition; climate action;
She added that productivity-linked incentive schemes in 14 sectors have been very well-received. Investment intentions worth Rs 30 lakh crore have been made. Economic growth is getting a boost from public investment and capital spending.
Taxes
Income from digital assets is to be taxed at 30% and except for the cost of buying a digital asset, no other deductions will be made. The loss from transactions of digital assets cannot be set off from any other income. Digital asset gifts like cryptocurrency gifts will be taxed at the receiver’s end.
If taxpayers have made an error while filing their returns, they can not file an updated return within two years from the year of assessment. The alternate minimum tax for cooperative societies has been cut down to 15% with surcharges being reduced to 7% for those with incomes between INR 1 crore to INR 10 crores.
Tax deduction on employers contribution to NPS has been increased to 14%.
Jobs
ECLGS has been extended till March 2023 and the Government hopes to add 60 lakh jobs in the next 5 years. A digital ecosystem for skilling and making money will be launched soon. This will help people learn new skills, re-skill, and up-skill through online training. API-based skill credentials, payment layers, and other tools will help people find jobs and opportunities.
Infrastructure
National highways will be expanded by 25,000 kms in the upcoming financial year. The Desh stack e-portal will be launched to promote digital infrastructure.
Air India’s strategic ownership transfer has been completed. Four multi-modal national parks will be built in the next two years.
One product, one railway station will be promoted with 400 new Vande Bharat trains being introduced.
There will be a PM Gatishakti master plan for expressways next year. There will be 100 PM Gati Shakti terminals built in the next three years. Over the medium term, the government will invest in infrastructure and use the Gati Shakti tech platform to modernise it. This will help the economy move forward, and it will lead to more jobs and opportunities for the youth.
Housing And Urban Planning
In 2022-23, 80 million houses will be finished for PM Awas Yojana beneficiaries; 60,000 homes in rural and urban areas will be chosen as beneficiaries of the PM Awas Yojana.
60,000 crore has been set aside to make sure that 3.8 million households had access to tap water.
A high-level committee of urban planners and economists will be set up to make recommendations on urban city building. Five of the existing academic institutions for urban planning are to be declared as Centre for Excellence with an endowment fund of INR 250 crores.
New modern building by-laws are to be introduced. The government is also going to push for public transport usage in urban areas.
MSMEs and Startups
A five-year, Rs 6,000-crore scheme to rate MSMEs will be implemented. The reach of MSMEs such as Udyam, e-shram, NCS, and Aseem portals would be widened and they’ll now act as portals with live organic databases, offering G-C, B-C, and B-B services including credit facilitation and expanding entrepreneurial opportunities.
A fund with blended capital has been raised under NABARD’s co-investment approach to finance agriculture and rural enterprise startups for the farm product value chain
An expert group will be formed to recommend steps to help attract investment after PE/VC invested Rs 5.5 lakh crore in a startup.
Agriculture
The government would spend Rs 2.37 lakh crore on wheat and paddy procurement under the MSP programme The International Year of Millets has been declared for 2022-23 Small farmers and MSMEs will benefit from new rail products. To reduce imports, a more rationalised plan to boost domestic oilseed production will be implemented. Kisan Drones will be used for crop assessment, land records, and insecticide spraying and are expected to drive a wave of technology in the agricultural sector.
INR 44,605 crores have been allocated for the linking of Ken Betwa river. Five river linkages have had their draught DPRs has also been finalised.
Along the Ganga river corridor, natural farming will be promoted. Ministries for procurement will create an entirely paperless, e-billing system and farmers will be given financial assistance to start agroforestry operations.
Electric Vehicles
A battery swapping policy will be developed to allow EV charging stations for automobiles. The private sector will be encouraged to develop sustainable and innovative business models for battery and energy as a service, thereby improving EV ecosystem efficiency.
Education
States will be encouraged to revise agricultural university curricula to meet the needs of natural, zero-budget, and organic farming, as well as modern-day agriculture.
The PM eVIDYA’s ‘one class, one TV channel’ programme will be expanded from 12 to 200 TV channels, allowing all states to provide supplementary education in regional languages for classes 1 to 12.
A digital university will be established to provide education; it will be built on a hub-and-spoke model. A 1-Class-1-TV Channel will be implemented to provide supplementary education to children in order to compensate for the loss of formal education due to Covid.
Finance and inclusion
Rs 1 lakh crore in financial assistance will be provided to states to catalyse investments in 2022-23.
RBI proposes to introduce Digital Rupee using blockchain technology in 2022-23.
The core banking system will be implemented in all 1.5 lakh post offices, enabling financial inclusion and account access via net banking, mobile banking, and ATMs, as well as providing online transfer of funds between post office accounts and bank accounts. This will be especially beneficial to farmers and senior citizens in rural areas, allowing for interoperability and financial inclusion.
Amendments to the IBC to improve the efficiency of the resolution process. The government will also facilitate the resolution of cross-border insolvencies and expedite the voluntary closure of businesses.
To encourage digital payments, scheduled commercial banks will establish 75 digital banks in 75 districts. An international arbitration centre will be established to facilitate faster dispute resolution. According to FM, a world-class university will be permitted in the GIFT IFSC, free of domestic regulation.
Healthcare
An open platform for the national digital health ecosystem will be launched, which will include digital registries of health providers and facilities, a unique health identity, and universal access to health facilities.
A National Tele Mental Health Program will be launched to provide mental health counselling.
Telecom
A spectrum auction will be held in 2022 to prepare for the 5G rollout. A design-led manufacturing scheme will be launched as part of the PLI scheme to enable affordable broadband and mobile communication in rural and remote areas.
A portion of the USO Fund will be used for R&D and technology advancement and contracts for laying optical fibre in villages will be awarded under the BharatNet PPP project in 2022-23. A data centre and an energy storage system will also be designated as infrastructure, allowing for easy financing.
Women and Children
Recognizing the significance of ‘Nari Shakti,’ three schemes will be launched to provide integrated development for women and children, including the upgrade of 2 lakh Anganwadis to improve child health.
Ease of Businesses
75,000 compliances have been eliminated, and 1,486 union laws have been repealed to make doing business easier. Corporate voluntary exit will be reduced from two years to six months.
Defence
The government has committed to reducing imports and promoting self-reliance in the defence sector; 68% of capital for the defence sector will be earmarked for local industry and 25% of the defence R&D budget will be made available to industry, startups, and academia.
Through the SPV model, private companies will be encouraged to design and develop military platforms and equipment in collaboration with DRDO and other organisations.
In 2022-23, the domestic industry will receive 68 per cent of the defence capital procurement budget (up from the 58 per cent last fiscal).
Railways
400 new-generation Vande Bharat trains will be manufactured over the next three years, and a 2,000-kilometer rail network will be brought under KAWACH for safety and capacity augmentation.
Climate Change and Net Zero Energy
Sovereign green bonds will be included in the government’s borrowing programme in this fiscal year and the proceeds will be used for public-sector projects Four coal gasification pilot projects will be established and PLI will receive an additional allocation of Rs 19,500 crore for the production of high-efficiency solar modules.
Travel
E-Passports with embedded chips will be issued in 2022-23 for ease of overseas travel.
In the last article, we got to understand the basics of what moves an option’s premium. There are several factors like implied volatility, moneyness and time to decay that affect its price. In this article, we take a detailed look at each of the options Greeks and how they work.
For every 1 Re change in the price of the underlying securities or index, Delta estimates how much an option’s price can be expected to vary. A Delta of 0.40, for example, suggests that the option’s price will move 40 paisa for every 1 Re movement in the price of the underlying stock or index. As you may expect, the higher the Delta, the greater the price variation.
Traders frequently utilise Delta to determine whether an option will expire in the money. A Delta of 0.40 is taken to signify that the option has a 40% chance of being ITM at expiration at that point in time. This isn’t to say that higher-Delta options aren’t profitable. After all, you might not make any money if you paid a high premium for an option that expires ITM.
Delta can alternatively be thought of as the number of shares of the underlying stock that the option mimics. A Delta of 0.40 indicates that if the underlying stock moves 1 Re, the option will likely gain or lose the same amount as 40 shares of the stock.
Call Options
The positive Delta of call options can range from 0.00 to 1.00. The Delta of at-the-money options is usually around 0.50. As the option’s price goes deeper into the money, the Delta will rise till it eventually reaches 1. As expiration approaches, the Delta of ITM call options will approach 1.00. As expiration approaches, the Delta of out-of-the-money call options will almost go down to 0.00.
Put Options
The negative Delta of put options can range from 0.00 to –1.00. The Delta of at-the-money options is usually around –0.50. As the option goes deeper ITM, the Delta will fall (and approach –1.00). As expiration approaches, the Delta of ITM put options will reach –1.00. As expiration approaches, the Delta of out-of-the-money put options will almost go down to 0.00.
Gamma
Gamma represents the rate of change in an option’s Delta over time, whereas Delta is a snapshot in time. You can think of Delta as speed and Gamma as acceleration if you remember your high school physics lesson. Gamma is the rate of change in an option’s Delta per 1 Re change in the underlying stock price in practice.
We imagined a Delta of.40 choice in the previous case. The option’s Delta is no longer 0.40 if the underlying stock moves 1 Re and the option moves 40 paise with it. Why? The call option is now considerably deeper ITM, and its Delta should move even closer to 1.00 as a result of this 1 Re move. Assume that the Delta is now 0.55 as a result of this. The Gamma of the choice is 0.15, which is the difference in Delta from 0.40 to 0.55.
Gamma falls when an option acquires further ITM and Delta approaches 1.00 since Delta can’t reach 1.00. After all, when you near top speed, there’s less room for acceleration.
Theta
If all other factors remain constant, theta informs you how much the price of an option should decline each day as it approaches expiration. Time decay is the term for this type of price depreciation over time.
Time-value erosion is not linear, which means that as expiry approaches, the price erosion of at-the-money (ATM), just slightly out-of-the-money, and ITM options generally increases, whereas the price erosion of far out-of-the-money (OOTM) options generally drops.
Vega
Vega is the rate of change in an option’s price per one percentage point change in the underlying stock’s implied volatility. Vega is used to estimate how much the price of an option would vary with respect to the volatility of the underlying.
More information on Vega:
One of the most important elements impacting the value of options is volatility. Both calls and puts will likely lose value if Vega falls. A rise in Vega will normally raise the value of both calls and puts.
If you ignore Vega, you may end up paying too much for your options. When all other conditions are equal, consider purchasing options when Vega is below “normal” levels and selling options when Vega is above “normal” levels when choosing a strategy for options trading. Analysing the implied volatility with respect to the historical volatility is one approach to analyse this.
Implied volatility
Despite the fact that implied volatility is not a Greek, it is still important. Implied volatility is a prediction of how volatile an underlying stock will be in the future, but it’s only an estimate. While it is possible to predict a stock’s future movements by looking at its historical volatility, among other things, the implied volatility reflected in an option’s price is an inference based on a variety of other factors, including upcoming earnings reports, merger and acquisition rumours, pending product launches, and so on.
These are the different option greeks that you need to use in conjunction with other bullish and bearish strategies and mathematical models that you might use to determine market moves.
A lot of factors influence an option’s pricing, which can benefit or hurt traders depending on their positions. The “Greeks” are a set of risk metrics named after the Greek letters that identify them, which reflect how sensitive an option is to time-value decay, changes in implied volatility, and movements in the price of its underlying security.
Theta, vega, delta, and gamma are the four basic Greek risk measurements. Here’s a closer look at each.
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Why option Greeks For the uninitiated, options can be exercised, or converted into shares of the underlying asset, at a set price. Every option has an expiration date and a premium connected with it. One of the most popular option pricing models is Black-Scholes, which leads to price fluctuations. Greeks are frequently viewed alongside an option price model to properly assess risk.
Volatility Volatility refers to how much an option’s premium (or market value) changes before expiration. Financial, economic, and geopolitical risks can all create price changes.
Implied volatility measures the market’s expectation of price movement. Investors use implied volatility (or implied vol) to forecast future price movements in a securities or company. If implied volatility is predicted to rise, the premium on an option will likely rise as well.
Profitability Several words describe a profitable or unprofitable option. The intrinsic value is the difference between the strike price and the price of the underlying stock or asset.
At-the-money options have the same strike price as the underlying asset. An in-the-money option has a profit because the strike price is higher than the underlying price.
In contrast, an out-of-the-money option has no profit when compared to the underlying’s price. In the case of a call option, the underlying price is less than the strike price. A put option is OTM when the underlying price exceeds the strike price.
Influences on an Option’s Price Assuming other variables stay constant, an increase in implied volatility increases an option’s price.
Traders that are long or short will have different returns. If a trader is long a call option, increased implied volatility is beneficial since it increases the option premium. For traders holding short call options, an increase in implied volatility has the opposite (or negative) effect.
A surge in volatility would not assist a naked option writer because they want the option’s price to fall. Writers are option sellers. If a writer sells a call option, the buyer will exercise the option if the stock price rises above the strike. That is, if the stock price rose enough, the seller would have to sell shares to the option holder at the strike price.
Sellers of options are compensated for the risk of their options being exercised against them. This is called shorting.
A decrease in implied volatility, shorter expiration time, and a decline in the underlying security’s price favour the short call holder.
Increasing volatility, time left on the option, and underlying will benefit long call holders.
Indicated volatility decreases, time till expiration increases, and the price of the underlying security rises for short put holders, whereas long puts profit from an increase in implied volatility, time until expiration increases, and the underlying security price decreases.
During the life of most option deals, interest rates play a little influence. Its impact on an option’s price is measured by rho, a lesser-known Greek. Generally, higher interest rates make call options more expensive and put options cheaper.
All of this sets the stage for examining the risk categories used to assess these variables’ relative impact.
Remember that the Greeks help traders forecast price fluctuations. In this article, we have laid a foundation on what moves an option price. In the next article, let’s take a closer look at the different Greeks in an option.
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Every day, thousands of traders and investors participate in the capital markets. All of the participants’ primary goal is to make a profit. To trade in the stock market, you can use a variety of techniques and strategies. A trading strategy, on the other hand, becomes applicable only if the asset’s price moves in a favourable direction. Arbitrage is a unique but simple method of profiting from the capital markets.
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What exactly is arbitrage? To understand how arbitrage works, it is essential to first define arbitrage. Arbitrage is defined as the simultaneous purchase and sale of the same asset in different markets in order to profit from the price difference in both markets. While arbitrage opportunities can arise in any asset class that is traded in different markets in a standardised form, currency and stock markets are the most common. Arbitrage opportunities are frequently fleeting, lasting only seconds or minutes. Contrary to popular belief, markets are not completely efficient, creating arbitrage opportunities. As you may know, the price of an asset is determined by the supply and demand for it. A price difference arises as a result of a difference in supply and demand for an asset in different markets, which can be used for arbitrage trading.
What is the process of arbitrage trading? As mentioned earlier, arbitrage trading is based on the trader’s ability to capitalise on the price gap of the same asset in different markets. Because arbitrage opportunities are limited, most traders use algorithms to execute arbitrage trades. Let us look at a stock market example to see how arbitrage works. Assume XYZ is a stock that is traded on the National Stock Exchange and the New York Stock Exchange. On the NYSE, the price of XYZ is quoted in US dollars, while on the NSE, it is quoted in Indian rupees. On the NYSE, the share price of XYZ is $4. The share price on the NSE is Rs 238. If the USD/INR exchange rate is Rs 60, the NYSE share price of XYZ in INR will be Rs 240. If the USD is converted to INR, the same stock is quoted at Rs 238 on the NSE and Rs 240 on the NYSE. To take advantage of the arbitrage opportunity, a trader will purchase XYZ shares on the NSE at Rs 238 per share and sell the same number of shares on the NYSE for Rs 240, earning a profit of Rs 2 per share. While participating in arbitrage trades, traders must consider certain risks. The price difference is the result of a favourable exchange rate, which is constantly changing. Any significant change in the exchange rate while the trade is being carried out can result in losses. The transaction fees are another important factor to consider. If the transaction cost exceeds Rs 2 per share, the price gain will be lost.
In India, how does arbitrage work? There is a scarcity of companies that are listed on both the Indian and foreign stock exchanges. However, India has two major exchanges—the BSE and the NSE—and the majority of companies are listed on both, creating an opportunity for arbitrage. Even if the price of a particular share differs between the NSE and the BSE, an arbitrage trade cannot be conducted. On the same day, traders are not permitted to buy and sell the same stock on different exchanges. For example, if you buy XYZ shares on the NSE today, you cannot sell them on the BSE the same day. So, how exactly does arbitrage work? One can sell shares that he or she already owns on one exchange and buy the same amount on another. For example, if you already own XYZ shares, you can sell them on the BSE and purchase them on the NSE. If you already own the stock, you are not engaging in an intraday trade on different exchanges, which is not permitted.
Conclusion Because the price differential does not last long, automated systems are commonly used for arbitrage trading. Though spotting arbitrage opportunities is simple, profiting from them manually is extremely difficult. As we mentioned earlier, arbitrage trading needs the best online trading platform for you to instantly capitalise on any price difference between NSE and BSE. Zebull from Zebu is the fastest growing and best stock trading platform that comes with a mind-boggling number of features to help traders. Zebu is also becoming the fastest-growing brokerage firm in the country – please get in touch with us to know more about our products and services.
Hedging is a beneficial investment strategy that every investor should know about. Hedging in the stock market provides portfolio safety, which is often as important as portfolio growth. Hedging is commonly discussed but not explained. But it’s not a mystical term. Even a novice investor can benefit from learning about hedging.
Before hedging
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Hedging
Consider hedging as a type of insurance. By hedging, people protect themselves from the financial consequences of an unfavourable event. This does not stop all bad things from happening. However, if a negative event occurs, properly hedged, the damage is lessened.
Hedging happens very universally. For example, buying a homeowner’s insurance protects you against fires, burglaries, and other unanticipated events. Portfolio managers, investors, and organisations employ hedging to decrease risk. In the financial markets, hedging is not as straightforward as paying an annual insurance premium.
Hedging investment risk involves strategically using financial instruments or market tactics to offset price risk. Traders hedge one investment by trading in another. To hedge, you must conduct counter-trades in securities having negative correlations. Of course, you must still pay for this type of insurance. For example, if you own XYZ stock, you can buy a put option to protect your investment from large declines. However, to buy an option, you must pay a premium.
Less risk means less possible profit. So, hedging is a practice used to decrease prospective losses (and not maximise potential gain). If the investment you’re hedging against is profitable, you’ve usually lowered your prospective profit. If the investment fails, your hedging will have decreased your loss.
Hedging Explained
Derivatives are commonly used in hedging strategies. One of the most common derivatives is options. In trading techniques involving derivatives, a loss in one investment is compensated by a gain in another.
Assume you hold Tata motors stock. You believe in the company’s long-term success, but you are concerned about recent losses. Put options let you protect yourself against a decline in CTC by selling it at a predetermined strike price. This is called a married put. If your stock price falls below the strike price, the gains from the put option reduce your losses.
Hedging Drawbacks
Every hedging approach has a cost. So, before you utilise hedging, consider whether the possible benefits outweigh the costs. Hedging is used to safeguard against losses, not to create money. The cost of hedging, whether it’s an option or lost earnings from a futures contract, is unavoidable.
While hedging is similar to insurance, insurance is more precise. With insurance, you are fully paid. Portfolio hedging isn’t exact. Things can get unpredictable. The perfect hedge is a goal that risk managers strive for but rarely accomplish.
Hedging and You
Most investors will never trade a derivative. In fact, most long-term investors overlook short-term volatility. Hedging has little value for these investors because they let their investments expand with the market. So why hedge?
In order to understand how it works, you should hedge your own portfolio. Many large corporations and financial funds will hedge their protfolio. Examples of hedges include oil companies. For example, an international mutual fund may protect against currency swings. Understand and assess these investments with a rudimentary understanding of hedging.
Forward Hedge Example
A wheat farmer and the wheat futures market are two examples of hedging. The farmer sows in the spring and harvests in the fall. In the interim, the farmer faces the danger of decreased wheat prices in the fall. While the farmer wants to maximise his harvest’s profit, he does not want to bet on wheat’s price. At the present price of $40 per bushel, he can sell a three-month futures contract. It’s called a forward hedge.
After three months, the farmer is ready to harvest and sell his wheat at market price. It is now only $32 per bushel. They buy wheat for that price. Simultaneously, he buys back his short futures contract for $32, netting $8. His wheat sells for $32 + $8 hedging profit = $40. When he planted his crop, he locked in the $40 price.
Assume now that wheat is $44 a bushel. Sells his wheat at market price and buys back his short futures for $4. His net profit is $40 ($44 – $4). Both his losses and gains are reduced.
The Verdict
Investing involves a certain amount of risk. A fundamental understanding of hedging methods can help any investor understand how corporations and investors protect themselves.
Whether or not you decide to start using complex derivatives, learning about hedging will improve your market knowledge and make you a better investor.
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