Zebu blog

Tag: risk management

  • Why You Should Trade In Commodities During A Global Crisis

    Commodity trading has a long history in India. The Bombay Cotton Trade was established in 1875, marking the first significant milestone. Then, in 1991, came the liberation policy, which boosted commodities trading. Futures were reintroduced in 1994 after being discontinued owing to war and food shortages. Agricultural goods were included as a result of the reintroduction.

    Before we get into the benefits of trading in commodities we would like you to know that 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.

    Commodities are traded on six markets in India.

    They are as follows:
    MCX stands for Multi Commodity Exchange.
    NCDEX stands for National Commodity and Derivatives Exchange.
    NMCE stands for National Multi Commodity Exchange.
    ICEX stands for Indian Commodity Exchange.
    ACE stands for Ace Derivatives Exchange.
    UCX stands for Universal Commodity Exchange.
    When it comes to market share, MCX has a 70 percent stake, NCDEX has a 25 percent share, and NMCE has a 5 percent share.

    Here are a few benefits of commodity trading in India:

    1. A Reliable Option in a Crisis
    There aren’t many people interested in trading commodities. A trader, on the other hand, may consider investing in metals such as gold, silver, platinum, and other precious metals. In times of inflation and economic uncertainty, these provide security.

    2. Diversification of your portfolio
    If you’re an investor who already invests in equities and bonds, you might want to examine commodities as well. You can diversify your portfolio and develop a risk-adjusted strategy this way.

    3. Transparent
    Commodity trade has become more transparent in India because to online commodity trading. Price discovery is fair, and it is regulated by large-scale involvement. When there is such a large degree of engagement, it also aids in gauging the perception and outlook of commodity traders.

    4. Possibility of High Returns
    When it comes to commodities trading, there’s always the possibility that a trader will strike it rich. However, this is only achievable if a sound trading plan is in place.

    5. Hedging
    Hedging is the practice of managing price risks in the futures market by taking an equal and opposite position. Certain factors in commodity trading, such as natural disasters, economic crises, or war, might cause commodity prices to rise. These commodities can be used as a risk hedge.

    6. Anti-inflationary protection
    Commodity prices typically rise during periods of inflation. Investing in the right commodities will not only help you beat inflation but also help you make excellent profits.

    7. Trading with a Smaller Margin
    Commodity trading allows you to trade with a reduced margin of 5% -10%. You can take bigger positions with less capital if you have a lower margin.

    8. There will be no cut-offs
    Time decay is a constraint while trading Options. As the expiration date approaches, there is less time to cash in on the option financially. Time decay is not an issue in commodities futures because there is no expectation of a strike price at expiration.

    As we mentioned before, trading strangles requires thebest 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 analysis easy for you. To know more about its features, please get in touch with us now.

  • 5 Things To Keep In Mind During Volatile Markets

    Right as we are escaping the third wave of a pandemic, we find ourselves in the midst of a war. And naturally, that has made global markets topple and become extremely volatile.

    What exactly is market volatility? Market volatility, in technical terms, refers to the standard deviation of stock market returns from the mean. Volatility is the fluctuations of the stock market in layman’s words. What is the significance of market volatility? It is significant for three reasons. To begin with, market volatility is a measure of risk; the higher the volatility, the higher the market risk. Second, while volatility cannot be avoided, it may be managed. Your volatility plan will come in handy in this situation. Finally, there is an inverse link between stock market volatility and returns. Higher returns are associated with lower volatility, and vice versa.

    When the Nifty index is compared to the VIX, or volatility index, the dramatic surge in the Nifty after 2009 has been accompanied by a continuous and secular decline in the VIX. Similarly, the Nifty had reached a long-term bottom when the VIX reached a peak in 2008. So, how should you invest in volatile markets, given that volatility cannot be avoided entirely?

    Before we get started, it is our duty, as an online stock broker, to caution you about keeping your capital safe in a volatile market. However, if have advanced knowledge about a volatile market, you can make use of it to drastically improve your profits. That is why we have created a high-end online trading platform with the lowest brokerage for you to maximise your returns from the market.

    Here are five simple yet effective methods to manage a volatile market.

    1. Stick to your financial strategy

    That is the first and most important thing to remember. If you look at the VIX chart over the last several years, you’ll notice that it’s been on a secular downward trend. However, if you look at the interim period, you’ll notice that there have been at least 8-10 occasions when volatility has risen significantly. The main point is to stick to your long-term financial plan. This strategy is geared at your long-term objectives and has some built-in safeguards to deal with market volatility. The systematic investment plan (SIP), for example, is meant to take advantage of market volatility. SIPs are critical to ensuring that the power of compounding works in your favour because they are the foundation of your financial strategy. If you look at the performance of SIPs over the last 9 years, you’ll notice that they’ve outperformed the index because they’ve taken advantage of market volatility.

    2. Focus more on quality and less on risk

    This is in relation to your stock and stock mutual fund holdings. We usually add more mid-caps, small caps, sector funds, thematic funds, and so on when the markets are on a roll. When the markets are turbulent, never take on too much concentration risk. Second, look for stocks that have a history of strong levels of transparency and corporate governance. In a volatile market, they’re your greatest bets. Third, concentrate on high-growth equities, high-margin enterprises, and industry leaders. In times of market volatility, they are the most likely to outperform.

    3. Hedge with derivatives

    Futures and options are seen by many investors as a low-margin alternative to cash market trading. They are, in fact, great risk management tools. These derivative products should be used most effectively in volatile markets. When you’re long on equities in a turbulent market, for example, you can use futures to lock in profits while still benefiting from roll premiums. Second, you can utilise put options to hedge your risk, as well as beta hedging with index futures to lower your portfolio’s risk. If you’re ready to be a little more daring and aggressive, volatility tactics like straddles and strangles can help you take advantage of tumultuous markets. In these uncertain times, you have a lot of options.

    4. Make sure your asset mix is well-balanced

    When markets are volatile, how do you manage your asset mix? During volatile times, certain assets do not exhibit the same level of volatility as equities. When equities indexes are turbulent, for example, debt markets tend to be more stable. As a result, having debt in your portfolio gives stability and the security of a steady stream of income. Gold, on the other hand, usually benefits from macroeconomic volatility. In these turbulent times, increasing your gold exposure through gold ETFs or SGBs can be beneficial. The moral of the storey is to keep your asset mix varied to combat volatility.

    5. If in doubt, don’t do anything.

    Traders typically believe that there are only two trading methods to master: when to buy and when to sell. Actually, there is a third option: doing nothing. It is quite easy to be enticed into the market by the prospect of making money off a volatile market. The general guideline is that if you don’t understand the market’s undertone, you should stay out of it. Staying out at the correct time and doing nothing can be a crucial element of strategy in unpredictable markets.

    As a fast-growing online stock broker, we at Zebu always watch out for our investors and traders. If you choose to execute safe strategies during this volatile time, we back you up with the lowest brokerage possible. To know more about our state-of-the-art online trading platform and its features, please get in touch with us now

  • Common Options Trading Mistakes And How To Avoid Them – Part 3

    In our journey to list the common options trading mistakes that beginner traders make, we are at the very end. In this article, we will cover the final 4 common mistakes that options traders make and how you can avoid them by trading smarter.

    Before we begin though, you need to understand that options can help you grow a small account into a much larger one. However, you can enjoy all of that with the lowest brokerage you can find for options trading. Zebu gives you this and more. As one of the best brokerage firms in the country, you also get the best trading accounts from us. Please get in touch with us to know more.

    7. Failure to Factor Upcoming Events

    When you trade options, there are two things you need to keep an eye on: the earnings and dividend dates for the stock you’re betting on.

    If a dividend is coming up and you have sold calls, there is a higher chance that your premium will rise due to positive market sentiments. As the holder of an option, you are also not entitled to the dividends of the company. Therefore, you have to cover your call option and buy the underlying stock.

    The smarter way to trade

    Be sure to factor in upcoming events. Also, unless you’re ready to take a larger risk of assignment, avoid selling options contracts with upcoming dividends.

    Trading during earnings season usually means you’ll see more volatility in the underlying stock and pay more for the option. If you want to buy an option during earnings season, you can create a spread by buying one option and selling another.

    Understanding implied volatility can also help you make better decisions about the current price of an option contract and its anticipated future fluctuations. Implied volatility is calculated from the price of an option and reveals what the market thinks about the stock’s future volatility. While implied volatility cannot predict which way a stock will move, it can help you determine whether it will move significantly or only slightly. It’s important to remember that the bigger the option premium, the greater the implied volatility.

    8. Legging Into Spreads
    Most rookie options traders attempt to “leg into” a spread by purchasing one option first and then selling the other. They’re attempting to reduce the price by a few pennies. It simply isn’t worth taking the chance.

    This scenario has also burnt many seasoned options traders, who have learnt their lessons the hard way.

    The smarter way to trade

    If you want to trade a spread, don’t “leg in.” Spreads can be traded as a single deal. Don’t take on unnecessary market risk.

    You might, for example, buy a call and then try to time the selling of another call to get a slightly higher price on the second leg. If market circumstances deteriorate, you won’t be able to cover your spread, so this is a losing strategy. You can be stuck on a long call with no plan to follow.

    If you want to try out this trading method, don’t buy a spread and wait for the market to move in your favour. You may believe that you will be able to resell it at a greater price later, but this is an unrealistic expectation.

    Always treat a spread as a single trade rather than try to deal with the details of timing. You have to get into the trade before the market starts going down.

    9 Ignoring Index Options for Neutral Trades

    Individual stocks can be quite volatile. For example, if there is a major unforeseen news event in a company, it could rock the stock for a few days. On the other hand, even serious turmoil in a major company that’s part of the Nifty50 probably wouldn’t cause that index to fluctuate very much.

    What’s the moral of the story?

    Index-based options trading can protect you from the massive swings that single news items might cause in individual stocks. Consider neutral trades on big indexes, and you can minimise the uncertain impact of market news.

    The smarter way to trade

    A short spread (also called a credit spread) on an index could be a good way to make money when the market doesn’t move. In comparison to other stocks, index moves are less dramatic and less prone to be influenced by the media.

    Short spreads are typically designed to profit even if the underlying price remains unchanged. Short call spreads are considered “neutral to bearish,” whereas short put spreads are considered “neutral to bullish.”

    Remember, spreads involve more than one option trade, and therefore incur more than one count of brokerage.

    As we have mentioned before, avoiding these mistakes while starting on your options trading journey can go a long way in protecting your capital. While you take care of your options trading strategy, we take care of the rest. As one of the fastest-growing brokerage firms in the country, we provide our clients with the best trading accounts as well as the lowest brokerages for options trading. To know more about our services and products, please get in touch with us now.

  • Common Options Trading Mistakes And How To Avoid Them – Part 2

    In the previous article, we saw 3 of the most common mistakes beginner options traders can make and the smarter ways to overcome them. This article is a continuation of the list and we will cover 3 more common mistakes that can be avoided by trading smartly.

    But do people make mistakes only with strategies? No, it is important to choose the right technologies as well. As one of the top brokers in the share market, we at Zebu offer trading accounts with lowest brokerage, and an online trading platform to help you focus only on executing your strategies efficiently.


    4. Not Trying Out New Strategies

    Out-of-the-money options and in-the-money options are two types of options that many traders say they won’t buy or sell. These rules don’t make sense until you’re in a trade that’s going against you.

    We’ve all been there. A lot of people break their own rules when they face this situation.

    You can find several options trading strategies that can be integrated into your own system. The most important point here is that buying a call option is so much different than buying a stock or its futures. But it can be a lucrative career if you are starting out with a smaller capital.

    The smarter way to trade

    Be willing to learn new ways to trade options. Remember that options aren’t the same thing as stocks. This means that their prices don’t move the same or even have the same properties as the stock they’re linked to. Time decay always needs to be taken into account when you make plans.

    Find a new trade that makes sense to you. Options can be a great way to get a lot of leverage on a small amount of money, but they can also quickly lose value if you dig yourself in too far. Be willing to lose a small amount of money if it gives you the chance to avoid a disaster in the long run.


    5. Trading illiquid options

    Liquidity is all about how quickly a trader can buy or sell something without creating a big change in the price. A liquid market is one with ready, active buyers and sellers at all times.

    Here’s another way to look at it: liquidity is the chance that the next trade will be done at the same price as the last one.

    It’s simple: Stock markets are more liquid than option markets because they have more people buying and selling them. Stock traders only trade one stock, but options traders may be able to choose from dozens of options contracts.

    If you want to trade stocks, you’ll only be able to buy one type of TCS stock. Options traders, on the other hand, can choose from 3 different expiration dates and a wide range of strike prices to trade. With these many options, the options market will probably not be as liquid as the stock market.

    Stock or options traders don’t have to worry about having enough of a stock like TCS because it’s usually a lot bigger than that. There is more of a problem with small stocks.

    If the stock is illiquid, the options of the same stock will likely be even more inactive. This is usually going to make the spread between the bid and ask price for the options look a little too big.

    For example, if the bid-ask spread is Rs 0.20 (bid = Rs 1.80, ask = Rs 2.00), and if you buy the Rs 2.00 contract, that’s a full 10 percent of the price paid to establish the position.

    It’s never a good idea to start your trade with a 10% loss right away, just by choosing an option with a wide bid-ask spread.

    The smarter way to trade

    It costs more to do business when you trade options that aren’t easy to sell. A simple rule you can follow is to make sure that the associated open interest for the strike price is at least equal to 40 times the number of contracts you want to trade.

    For example, if you want to trade a 10-lot, you should have at least 400 open orders. Open interest represents the number of outstanding options contracts of a strike price and expiration date that have been bought or sold to open a position. Any opening transactions increase open interest, while closing transactions decrease it. You can trade options that are easy to buy and sell. This will save you money and stress. Plenty of liquid opportunities exist.

    6. Waiting Too Long to Buy Back Short Options

    There is only one piece of advice for those who do not buy back short options and it is as straightforward as it gets: Be willing to buy back short options early.

    There are a lot of times when traders will wait too long to buy back the options they’ve sold. There are a million reasons why. For example:
    You don’t want to pay the commission.
    You’re betting the contract will expire worthlessly.
    You’re hoping to make just a little more profit out of the trade.

    The smarter way to trade

    Know when to buy back your short options. If your short option becomes OTM and you can buy it back to take the risk off the table profitably, do it.

    A Rs 100 premium option might go down to Rs 2 at expiry. You wouldn’t sell a Rs 2 option to begin with, because it just wouldn’t be worth it. Similarly, you shouldn’t think it’s worth it to squeeze the last few paisas out of this trade.

    Here’s a good rule of thumb: If you can keep 80 per cent or more of your initial gain from the sale of the option, you should consider buying it back. As one of the top brokers in the share market, we at Zebu offer trading accounts with lowest brokerage, and an online trading platform to execute your strategies. To know more, please get in touch with us now.

  • Common Options Trading Mistakes And How To Avoid Them – Part 1

    When you trade options, you can make money even if stocks go up, down, or stay the same. With options trading, you can cut losses and protect gains for only a small amount of money.

    Great, right? Here’s the deal: When you trade options, you can lose more money than you invest in a short amount of time. This isn’t the same as when you buy a stock. You can only lose what you paid for the stock in that case. With options, depending on the type of trade, it’s possible to lose all of your money.

    That’s why it’s so important to be careful. Even if you’re an expert trader, you can still make a mistake and lose money.

    When it comes to online stock trading and growing your trading account, another important aspect for you to consider is the share market brokers you trust. At Zebu, we offer the best trading platform that is packed with features that will help you make better trading decisions.

    To help you avoid making costly mistakes, we’re going over the top 10 mistakes that new option traders make.

    1. Buying OTM call options

    Buying out-of-the-money (OTM) call options is the biggest mistake you can make when trading options.
    OTM call options seem like a good place to start for new options traders because they are cheap. This may feel safe to you because it’s the same thing you do as an equity trader: buy low and try to sell high. There are many ways to make money in options trading, but they are one of the most difficult. In this case, you might lose more money than you make if you only use this method.

    The smarter way to trade

    Think about selling an OTM call option on a stock that you already own as your first move. In the business world, this strategy is called a “covered call.”

    The risk doesn’t come when you sell an option when you have a stock position that covers the option. In addition, if you’re willing to sell your stock if the price goes up, it could make you money. This strategy can help you get a sense of how OTM options contract prices change as the expiration date nears and the stock price changes.

    It’s also possible to lose a lot of money by owning the stock, but that risk can be big. Even though selling the call option doesn’t put your money at risk, it does limit your chances of making money, which is called “opportunity risk.” You could have to sell the stock if the market rises and your call is taken.

    2. Not Knowing How Leverage Works

    Most people who start trading don’t think about how much risk they’re taking when they use the leverage factor in option contracts. They like to buy short-term calls. As a result of this happening so often, it’s worth asking: Is buying calls outright a risky or safe strategy?

    3. The smarter way to trade

    A general rule for new option traders: If you usually trade 100 share lots, stick with one option at first and start with that. If you usually trade 300 shares at a time, then maybe three contracts would be a good change of pace. This is a good amount to start out with. If you don’t do well with these sizes, you’ll probably not do well with bigger size trades, too. This is a general rule.

    4. Not having an exit plan

    You may have heard it before: When you trade options, like stocks, it’s important to keep your emotions in check. The point isn’t to be able to overcome all of your fears in a superhuman way.

    Having an exit plan even when things are going your way is part of this. Take the time to figure out where you want to leave and when you want to leave.

    If you start to worry about leaving some money on the table by getting out too early, don’t worry. Remember this counterargument: What if you made more money consistently, cut down on your losses, and slept better at night?

    5. The smarter way to trade

    Make sure you know how you’ll leave a trade. Whether you are buying or selling options, having an exit plan can help you set up better trading habits and keep your fears in check.

    Determine how you want to get out of the situation on the upside and how much you can handle on the other side. In the event that you reach your upside goals, you should clear your position and take your money. Don’t be too greedy. If you hit your stop-loss on the downside, you should clear your position again and start a new one. Don’t stay in a losing trade hoping that the prices may rise again.

    A lot of times, it’ll be hard not to go against this way of thinking. Don’t. Too many traders make a plan and then, as soon as they make a trade, ditch their plan and follow their feelings instead.

    Online stock trading requires you to stick to your plan and use the right market brokers to grow your trading account. At Zebu, we offer the best trading platform that is packed with features that will help you make better trading decisions. If you would like to know more, please get in touch with us now.

  • 10 Things To Keep In Mind If You Want To Become A Successful Trader

    When you are new to trading and are Googling what it takes to be a successful trader, you’ll quickly become familiar with terms like “plan your trade; trade your plan” and “minimise your losses.”

    And the amount of information available can soon overwhelm you. So, here is a simple, 10-step Gyan about what you should do in the first year of trading.

    Each of the guidelines below is vital, but their combined impact is powerful. Remembering these can considerably boost your chances of market success. But before we get into the article, make sure to always choose an online trading platform that offers either lowest brokerage or zero brokerage intraday trading.

    Never trade without a plan.

    A trading plan details a trader’s entrance, exit, and money management criteria for each buy. With today’s technology, it is easy to test a trading strategy before risking actual money. Backtesting allows you to test your trade concept using past data to see if it works. Once a plan is devised and backtested well, it can be employed in real trading. Your job is to simply keep to the strategy. Trading outside the trading plan, even if profitable, is considered a bad strategy.

    Trading As A Business

    Trading should be treated as a full-time or part-time business, not a pastime or profession. As a hobby, there is no genuine commitment to learning. A job without a regular income might be frustrating. Trading is a business with costs, losses, taxes, stress, and risk. As a trader, you are a tiny business owner who must research and plan to optimise your profits.

    Embrace Technology

    Trading is a cutthroat sport. It’s safe to presume that the most successful traders use all available technology. Traders can use charting software to view and analyse markets in limitless ways. Using a good and trusted online trading platform with the lowest brokerage or zero brokerage for intraday trading is another important strategy. Backtesting an idea with historical data saves money. We can track trading from anywhere with our smartphones. A high-speed internet connection, for example, can considerably improve trading performance. Technology and keeping up with new products may be exciting and lucrative in trade.

    Preserve your trading capital.
    Saving money for a trading account requires time and effort. It’s considerably harder when you have to do it again. Notably, safeguarding your trading capital does not imply never losing a trade. Every trader loses. Protecting capital means not taking needless risks and protecting your trading enterprise.

    Become a Student Of The Market

    Consider your career in trading as lifelong learning. Traders must keep learning every day. Remember that learning about markets and their nuances is a lifetime endeavour. Studying hard helps traders grasp economic information and help them develop an edge over the others. The ability to focus and observe allows traders to refine their skills. Politics, news, economics, and even the weather affect the markets. The market is fluid. Traders are better prepared for the future if they understand the past and current markets.

    Don’t Trade More Than You Can Afford to Lose

    First, be sure that all of the funds in your trading account are genuinely expendable. If it isn’t, you should save. Money in a trading account should not be used to pay for college or the mortgage. It is dangerous to use the money for trading that is earmarked for critical expenses. Money loss is bad enough. It’s even worse if it’s capital that should never have been risked.

    Develop a Fact-Based Methodology

    Developing a strong trading strategy takes time. It’s easy to fall for the online trading scams that promise trading strategies “so easy it’s like printing money.” Facts, not emotions or hope, should guide the creation of a trading strategy. In general, traders who are not in a hurry to learn can sort through the internet’s vast amount of data more easily. Suppose you wanted to change careers, but you needed to spend a year or two in college to be qualified to apply for a job in the new field. Learning to trade takes at least the same amount of effort and research.

    Use a Stop Loss

    As a trader, you set your own stop loss. The stop loss might be in rupees or percentages, but it restricts the trader’s risk. Using a stop-loss reduces tension when trading since we know we will only lose a certain amount. Even if a trade is profitable, not having a stop loss is undesirable. The trading plan’s guidelines allow for lost trades to be exited with a stop loss. The aim is to profit from every trade, but that is unrealistic. Using a precautionary stop-loss reduces losses.

    Know When to Sell

    Inefficient trading plans and ineffective traders are the worst combinations for a trading career. If you feel like your trading strategy is not responding well over a period of time, then take the time out to re-assess and develop your strategy again. An unsuccessful trading plan is an issue that has to be solved. It is not the end of a trading career.

    An ineffective trader is one who sets a trading plan but is unable to follow it. External stress, bad habits, and inactivity all contribute to this issue. Traders who are not in top trading condition may consider resting. After resolving any issues, the trader can resume operations.

    Remain Focused on Trading

    Trade with a big picture in mind. It’s normal to lose trades; it’s part of trading. A winning deal is only one step towards a successful business. And the cumulative profits matter.

    A trader’s performance improves once they accept wins and losses as part of the business. That is not to imply we cannot be happy about a successful deal, but we must also be aware of the possibility of a loss. Setting realistic goals is important for a trading career. Your company should make a reasonable profit in a reasonable time. Expecting to be a multi-millionaire by Tuesday is a recipe for disaster.

    Conclusion

    Understanding the value of each trading rule and how they interact can help a trader build a profitable trading firm. Traders who follow these criteria with discipline and patience might boost their chances of success in a highly competitive market.

  • The Basic Rules Of Position Sizing

    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.

  • The Art Of Trading With A Small Capital

    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

    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.


  • Let’s Make Sense Of Option Greeks – Part 2

    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.

    Before we begin…
    As we have mentioned in part 1, Zebu is fast emerging as the top broker in share market and provides the lowest brokerage for intraday trading. As an options trader, we will complement your strategies with Zebull, the best Indian trading platform. It comes with a variety of features that will help you analyse option greeks effortlessly.

    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.

    As the top broker in the share market, we have created Zebull. the best Indian trading platform with the lowest brokerage for intraday trading. With Zebull, you can easily analyse option Greeks and filter out stocks that work for you.