SLB Mechanism | Stock lending and borrowing mechanism | Securities lending and borrowing mechanism

👉(1/6)  What is stock lending & borrowing?

Stock lending and borrowing (SLB)is a transaction in which investors or traders borrow shares that they do not already have, or lend the stocks that they own but do not willing to sell in short term. 

Just like in a loan, SLB mechanism transaction happens at a interest and time that is fixed by the borrower  and lender before the transaction. However there is some difference between SLBM and loan. Loan interest rate is decided by the banker and SLBM interest rate is decided by the buyer, seller and other market conditions.

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👉(2/6)  What is the rate of interest in SLB?

The rate of interest in a stock lending and borrowing mechanism is decided on the stock’s value on that day. Mostly, rates are calculated on a monthly basis.

Rate of interest also can be decided for quarterly,monthly or yearly basis, but due to liquidity issues mostly transactions are carried on monthly settlement cycle. 

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👉(3/6)  Who are eligible to lend stocks or securities?

Stocks are mainly lend by long term and medium term investors who can hold stocks for a longer duration and do not willing to sell in short term.

They can earn extra income on their long term investments through SLBM mechanism.

The stocks which are included in derivatives are eligible for SLBM transactions. 

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👉(4/6)  What is tenure for stock lending and borrowing mechanism transaction? 

Stocks borrowed or landed can be any tenure between 1 month to 12 months on monthly settlement cycle. Every SLBM transaction is marked with the month in which is due to be settled. 

The first Thursday of each month is the settlement data for returning the shares to the lender, same like the derivative settlement cycle of last Thursday. 

The time fixed in a transaction is not strict in nature. The lender or borrower can cancel the transaction any time between the tenure. 

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👉(5/6)  Why do traders and investors lend or borrow stocks ? 

The main motive of SLB mechanism is to short sell the borrowed stock in a short term or swing trade and once the price falls borrower can buy the stock again and return it back to the lender in stock exchange. 

The net profit or loss of the borrower is determined by the difference between buying and selling price, deducted by the interest and other charges. 

The interest earned by the lender is an extra income on a long term Investments.

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👉(6/6)  Stock lender or borrower risks

Stock borrower risk

If the borrower is willing to short sell the stock then the 125% of the stock value is locked by the stock exchange of a borrower. This means the borrower has to short the stocks of 1 lakh then, stock exchange can block 1.25 lakh amount of borrower.

If the stock rises more than 25% in a month position of a borrower is squared off automatically and lender gets the premium and interest after squaring off.

Stock lender risk

If the stock or security shows the exponential rise in value within the SLBM tenure and borrower fails to give delivery of stocks then lender has to sell his stock forcefully and 125% amount of stocks value will be credited in lender's account. 

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 1. Types of stocks 

 2. Technical analysis 

 3. Correction analysis 

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Types of stocks

TYPES  OF  STOCKS

Stocks are classified into different types depending on their mcap, risk, growth, fundamentals, etc. As a trader/investor one should classify stocks into different characteristics to know where to invest or trade. Every investor is different in behavior and holding period, so the stocks should be selected by person to person on the trading style. 

1) Dividend stocks

Income earned through the dividend is passive income and income is granted till the stock returns are positive. 

Dividends are not noticed by traders but the investors has to take it into accounts. 

Dividends cannot be primary source of income. Stocks price appreciation is the main source of income for investors in stock market. 

It is mainly seen that PSU companies pay more dividends than private companies, but the returns of private companies are much larger than public enterprises.

2) Fundamentally strong stocks

Fundamentals of the company are mainly studied in long term Investments. Fundamental analysis is not applicable for trading, but technical analysis is applicable for both long term and short term.

Fundamentals are mainly focused on the intrinsic value. Intrinsic value is calculated through mainly ratios and combination of business model study.

If the share price is above the intrinsic value then the share price is considered as expensive to buy and vice-versa. 

3) Risky stocks 

Risky and non risky stocks are classified on depending upon their fluctuation. Mainly the smallcap and penny stocks show more fluctuations than large or stable stocks.

Penny stocks mainly fluctuate on the news basis. Circuit to circuit trading is common in penny stocks due to low liquidity. 

Some smallcap stocks has a higher potential of returns than largecap stocks, but risk management and strong analysis is required to take smallcap stocks. 

4) Stable stocks 

Stable stocks are stable business companies, stable earnings growth & lower debt. 

Largecap private companies with stable growth business are mostly the stable stocks in nature.

Stable companies stocks are safe in nature. 

5) Growth stocks

Growth stocks refer to those companies who show high growth in top line and bottom line, this results in high growth in their stock prices. 

Growth stocks donot pay high dividends. They try to reinvest their large amount of profits into business.

Stocks like Asian paints, pidilite, reliance, etc donot pay high dividends, they show the high growth in stock prices. 

Payment of dividend is also a disadvantage in returns of investors. Before paying a dividend companies have to pay a tax on amount and investors have to pay tax accordingly to their tax slab. 

Growth stocks reinvest their profits into business and save taxes on dividends and help to gain more return on investment.

6) Cyclical stocks

Some businesses affects by the cycles of economy. Growth of specific business can face adverse effects on economic slowdown and vice-versa. 

Cyclical stocks cannot be a long term Investments for many years. It can be taken for 1 to 5 years depending on the economic cycle. 

Cyclical stocks can outperform the markets in a good economic cycle and may underperform in an adverse cycle. 

Some examples of Cyclical business are metal, infrastructure, auto, etc.

7) Non cyclical stocks 

Opposite of Cyclical stocks, non Cyclical stocks donot depend on the cycles of market and economy. 

Returns of non Cyclical stocks are good in economic slowdown and may underperform in capex cycles. 

FMCG, pharma, breweries, etc are some examples of non Cyclical businesses. 

8) Stocks on the basis of market capitalization

8a) largecap stocks 

Companies with the market cap of more than 20000 crores are called as large cap companies or large cap stocks. 

Large cap are mainly stable businesses and high market share companies. 

Nifty, Nifty junior, etc are some examples of large cap indexes on NSE.

8b) Midcap stocks

The companies with the market cap of 5000 to 20000 cr.

Midcap stocks can also be considered are potential future large cap stocks. 

Nifty midcap 100, Nifty midcap 250 are some examples of midcap indexes on NSE

8c) Smallcap stocks

Small cap stocks refer to those with the Mcap of 500 to 5000 crores.

Small cap stocks can provide large returns in favourable economic conditions. 

Nifty smallcap 100 is a EXAMPLE of small cap index on NSE

8d) Microcap stocks

Microcap companies stands for the mcap of 50 crores to 500 crores

8e) Nanocap stocks

Nano cap companies have a market cap less than 50 crores. Nano cap companies have a higher potential of multibagger returns and the chances of failures 

Doji candlestick pattern I Doji candle

 ✍ In Japanese, "doji" means blunder or mistake,1 referring to the rarity of having the open and close price be exactly the same.

✍Doji indicates that the bulls and bears have same power and ability to move price in their direction. It is believed that during uptrend at the top doji is formed and vice-versa. The direction of the price decides with the next candle formation after it.

✍Shadow of the doji indicates that which side is more stronger. Before taking a trade the closing and opeaning of the next candle is important. 

✍The closing of next candle above the high point of doji,indicates the bullish side is more powerful during the end of downtrend or correction.

✍If the closing of next candle is below the low point of doji,indicates the bearish side is more powerful during the end of uptrend.

✍gravestone is a stele or marker, usually stone, that is placed over a grave. It is traditional for burials in the Christian, Jewish, and Muslim religions, among others.

✍The term grave stone is used because it is formed at the bottom during the end of downtrend. The open price and closing price of all doji are same. 

✍As shown in th above image👆 the grave stone doji has large shadow at the upper end and open and close is almost same.

✍The trade has to taken when the price closes above the high point of the candle and stop loss has to be put on the lower end.

✍A Dragonfly Doji is a type of candlestick pattern that can signal a potential reversal in price to the downside or upside, depending on past price action. It's formed when the asset's high, open, and close prices are the same.

✍As shown in the above image the candle has long lower shadow and almost no upper shadow. The open and close of the candle is almost same.

✍The dragonfly doji acts as a trend reversal for the asset. The trade has to be taken after the closing of price above or below of upper or lower end and the stop loss has to be taken at the opposite side.

DOJI  TREND  REVERSAL  PATTERN

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ETF - Exchange Traded Funds

ETF are Exchange Traded Funds which trades in stock exchanges like a companies stocks. ETFs are managed by Asset Management company (AMC) like a mutual funds.

ETFs can be buy and sell in stock exchanges through a broker. Value or net asset value(NAV) changes of an ETF changes as per the trades in the markets. Units of an ETFs are only listed on stock market so they cannot be buy and sell through AMC companies. Like a normal stock sell first time its shares in stock market through IPO, AMC lists its ETf same as stock. Anyone can apply in it like a IPO. 

ETFs generally track the specific Index like Nifty, Bank Nifty, Nifty IT, etc. When any Investor buys an ETF he actually buys the specific Index and a fluctuation in that index fluctuates the ETF in same proportion. 

ETFs do not try to beat or outperform the markets. The try to give the almost same percentage of returns as the Index generates. This is a main reason that ETFs have less expense ratio than mutual funds. Passively managed mutual funds have low expense ratio than actively managed. 

Mutual funds try to beat the markets or Indexes but the less liquidity and more expenses are the disadvantages of it. Opposite of this ETFs have high liquidity and low expenses. 

ADVANTAGES  OF  ETFs

👉 ETFs are considered to be the safer or low risk investment option as compared to specific stocks or securities. 

👉 ETFs can be the low cost asset to diversify the portfolio with companies, sector, Index, etc.

👉 ETFs don't need to be managed wisely if it tracks to the large Index in a country, but it needs to be enter and exit timely 

👉 The Index shuffling by the management of stock exchange is the part of process in forming the Index. This effects the ETF positively. Low returns or any kind of problematic stocks may decrease the weitage or replace by good one.

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MUTUAL FUNDS  v/s  ETF

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LIST  OF  ETFs  TRADED  IN  NSE

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INTRODUCTION TO CANDLESTICKS I

CANDLESTICKS  BASICS

✍Candlestick charts are thought to have been developed in the 18th century by Munehisa Homma, a Japanese rice trader. They were introduced to the Western world by Steve Nison in his book, Japanese Candlestick Charting Techniques.

✍The colour of candle decides weather the candle is bullish or bearish. The bullish candle indicates that the closing price is greater than opeaning price. The bearish candle indicates that the opeaning price is greater than closing price.

✍As shown in the above image the candle formations consists of :-

1)upper shadow 

2)lower shadow 

3)real body

✍The time frame of the candle decides the time taken by a candle for formation. Eg. The candlestick time frame is on 2 hour then 2 hours is taken to form complete candle.

CONTENTS  OF  CANDLESTICK:-

1. LOWER  SHADOW

This indicates that the low made by the stock/index in the specific time frame.

2. UPPER  SHADOW

This indicates that the high made by the stock/index in the specific time frame.

3. REAL  BODY

This indicates the opeaning price and closing price of the candle.

While trading in a candlestick pattern the weitage has to be given to either shadow or body of the candlestick whichever has size more.

MYTH  BEHIND  CANDLESTICKS

1. Candlesticks can be used in short term not in long term.

Candlesticks patterns can be used in both long term and short term trading. Many people can say that short term is trading and long term is investment, but this is not true. Trading can be more than 1 year or can be also more than 5 years. Long term trade is also possible in technical analysis. 

Candlesticks pattern can be 1 minute, 5 min, 15 minute to 1 week and 1 month. 1 week candlestick chart patterns can be used to take trade for 3 to 6 months and 1 month candlestick pattern pattern can be used to take trade for 1 year. 

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A MAN WHO SOLD HIMSELF IN STOCK MARKET

On January 26, 2008, a 30-year-old man named Mike Merrill decided to sell himself in the stock market. Mike Merrill was born and raised in Detroit, Michigan,USA. 

He divided himself into 100,000 shares and set an initial public offering price of $1 a share. 

Over the next 10 days, 12 of his friends and acquaintances bought 929 shares, and Merrill ended up with a handful of extra cash. 

He kept 99.1% stake to himself and 0.9% to others. The income earned by Mike should be distributed as a dividend to shareholders. 

Each share would earn a potential return on profits he made of his day job as a customer service at a small Portland, Oregon, software company. 

He sold 11823 shares publicly to 805 investors after the listing in stock markets. 

The price of Mike Merrill share had made a high of $18 as the demand gets up.

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Introduction to Technical Analysis I What is technical Analysis I Technical analysis simplified

 🧐WHAT  IS  TECHNICAL ANALYSIS??🤔🤔

✍💡TECHNICAL ANALYSIS: 

The technical analysis exist in every part of our life. Eg. We see the clouds and predict weather and make the decision to take umbrella or not. This is based on our past performance. This is a part of technical analysis study.

         

          The alternative approach to predict stock price behavior is known as technical analysis. It is frequently used as a supplement rather than as a substitute to fundamental analysis. Technical analysis is based on notion that security prices are determined by the supply of and demand for securities. It uses historical financial data on charts to find meaningful patterns, and using the patterns to predict future prices. Edwards and Magee formulate the basic assumptions Underlying technical analysis:

 (1)The interaction of supply and demand determines the market value of the security.

 

(2) The various factors, both rational and irrational factors, govern the supply and demand of the securities. 

(3) Stock price tend to move in trend which persist for an appreciable length of time.

(4) Changes in trend are caused by shifts in supply and demand. 

(5) Shifts in supply and demand can be detected sooner or later in charts of market action. 

(6) Some chart patterns tend to repeat themselves. However, the fundamental analysis estimates the intrinsic of the stocks/securities.

Basic assumptions of Technical Analysis: 

✍Price discounts everything 

✍Prices move in trends 

✍History repeats itself 

✍Volume shows when investors are in and out

Myths Behind Technical Analysis

1. We can't time the markets

Many of you have listen many times that we can't time the markets or cannot anticipate the rise and fall in the markets. This is not a totally myth but neither its is a complete true statement.

The true statement is that we cannot exactly time the markets, but the cycles in long can be time with conviction. The end of a trending move especially the top of uptrend or the bottom of downtrend cannot be spotted easily. Opposite of that the end of correction can timed with most conviction.

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2. Technical analysis is applicable only for short term, not for long term

This is a another myth of technical analysis that long term price analysis is not possible in the case of technical analysis. Technical analysis is more effective in a long term trade than a short term. If technicals are applied in shorter time frame than accuracy may reduced than long term weekly, daily or monthly candle charts.

Volitality in a shorter time frame is always more as compared to long term trades. Minites, hourly candle charts are more volatile compared to daily, weekly and monthly charts.

Focus of more on Long term trades or medium term trades rather than intraday or scalping  increases the chances of profitability percentage. Long term or medium term positions are more accurate in technical analysis. 

VOLUMES

Volume is the total number of shares traded on one side of the transaction. Volume should be kept in check, when you buy a share. Low volume stocks should be avoided. 

➡When prices rise, and volume increase it is a positive sign. 

➡When prices fall and volume rises, it is a negative sign.

➡When prices rise and volume falls, it indicates that the rally is not very healthy, and some speculation might be going on.

➡️If price falls and volumes are decreasing,it can be positive sign and upmove is possible.

SUPPLY & DEMAND

 ✍The fundamental basis for technical analysis is that prices shift with supply and demand. 

✍If the demand exceeds the Supply, the price will rise. If the supply exceeds the demand, the price will fall.

✍Charts reflect this rise and fall. By studying this movement on a chart and using the technical studies, you can make predictions on which way the price is likely to go.

To trade supply and demand methodology in securities you should:

Buy when the price bounces upwards from a demand area.

Sell when the price bounces downwards from a supply area.

Hold your trade at least until the price action reaches an opposite level on the chart or use price action rules to manage the trade.

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