The Securities and Exchange Board of India (Sebi) on Wednesday said broking houses will have to provide for margining for all institutional trades in the cash markets with effect from April 21. The move brings institutional business on par with the retail segment.
At present, there is no margin system for institutional trades while brokers charge margins from retail customers for their trades.
“In order to provide level playing field to all the investors in the cash market as in the case of derivatives market, all institutional trades in the cash market would be subject to payment of margins as applicable to transactions of other investors,” said a Sebi circular issued on Wednesday
In the futures & options segment, there is margining system for both retail and institutional trades.
The margining decision coincides with Sebi’s decision to allow short selling, and securities lending and borrowing with effect from April 21. Brokers said the move was necessary as at present all the trades in the cash market by the institutional investors are delivery-based trades.
Following the implementation of short selling from April 21, brokers, as part of their risk mitigation exercise, need to provide for margins as the institutional trades may also be short selling in nature. Hence, the extra precaution.
The decision to impose margins for institutional trades will have a major impact on the trading volumes of small and mid-rung broking houses.
“We will have to provide for the margins ourselves to attract institutional trades,” said a head of a brokerage house. “Only big brokerage houses, which have big money, will survive in the new environment,” he said.
Sebi said to begin with, all institutional trades in the cash market would be margined on a T+1 basis with margin being collected from the custodian upon confirmation of the trade. Subsequently, with effect from June 16, 2008, the collection of margins would move to an upfront basis.
The market regulator asked stock exchanges to test the software and remove any glitches in its operation well before the commencement date to avoid any problems in the live environment.
Also, stock exchanges are required to make necessary amendments to relevant bye-laws, rules and regulations for the implementation of the new rules.
Understanding Short Term Trading
Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.
Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
1 comment:
I got to learn good facts on stock market here.Traders can earn themselves profitable returns by relying on usage on best stock futures tips always.
Post a Comment