What is Initial Public Offering (IPO); Definition and importance

The term Initial public offering (IPO) refers to the first issue (sale) of the shares of a private company to general public on a securities exchange. It is the stock market launch of the company. IPO's are issued by the companies to expand their capital, equity base, prestige and public image. Along with smaller, younger companies large private companies also issues IPO's. By this process a private company transforms to a public company.
 The company which sell shares not require to repay the capital to public investors. When the shares trade in open market, money passes through public investors.
The company which sells shares, only can make primary offering or Initial public offering.The conductors of IPO's are usually investment banks.
 According to the Securities act of 1933, the process of IPO starts when the company files a registration statement with Securities and Exchange Commission (SEC). Then after proper investigation Securities and Exchange Commission approves the disclosure. After getting approval from Securities and Exchange Commission, price and date of IPO are fixing.
 Investment in an Initial public offering is risky. It is mainly because the prediction of initial day's trade is very difficult.  As it is speculative, only Speculators with risk tolerance are advised to buy IPO's.

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Long position in stock market

In finance, the term 'Long position' or 'Long' is used to describe the ownership of a stock, security, contract,commodity or another financial instrument.In other words the buying of a financial instrument with the expectation of rise in price is called  Long.It is the opposite of the 'short position' or  'short'. If one person or entity is long on a security, it means that the holder owns the security or financial instrument. He will get profit if the price rises. The 'long position' (long) is established by placing a buy order.
 If an investor is long on 100 shares of SBIN, it means he owns 100 shares of SBIN.
 A trader can go long on underlying instrument by buying call options or writing put options.The call seller can be long on an underlying if he has the shares on hand.If the number of contracts bought exceeds the number of contracts sold, he is said to be long.If you want to close a long position, you must sell an equal amount of the same security to reduce your long position to zero.
 If a trader on investor is long on a security, the risk factors are less compared to short on that scrip.But it does not mean that there is no risk. Bull markets are better to go long on a stock. One must keep stop loss to avoid heavy losses while trading.

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Short selling in Stock, Commodity and Forex markets

In finance We can define short selling as the practice of selling securities (stocks, commodities, currencies or other financial instruments) which are not currently owned by the seller. When a trader or investor anticipating a decrease in share price, goes short but it is promised to be delivered. Shot selling is also known as shorting or going short.
 The purchasing of the stock after short selling is called 'Short Covering', 'covering the short' or 'covering the position'. If the price of the scrip declines at the time of short covering, the short seller will get profit as the cost of repurchase is less than the price of selling.If the price of a scrip increases prior to repurchase the short seller will incur a loss. The risk in short selling is that the potential loss of a short sale is unlimited. The short seller requires to keep a minimum margin to cover losses and keep the position. If the trader fails to keep the margin the broker or counter party may liquidate the position.
 On speculative markets traders uses the fluctuations to short a scrip to quickly make big profits.It is like gambling and in some cases it may result in heavy losses and as I mentioned above the loss of a short is theoretically unlimited.So one must keep strict stop loss to restrict the losses.
  In short selling, when you sell a financial instrument the broker will lend it to you from their own account or from some body else account (who is a customer of the firm) or from another brokerage to you.That is, you are borrowing the scrip and selling to some body else.You can hold the short as long as you want by keeping the margin. Some times interest may be charged to margin accounts. If the lender wants the stock back you borrowed from him you may either have to cover the short or borrow from another lender.
 In short, You are not the owner of the financial instruments you have sold. You must have to pay the dividends* or rights declared during the period of short to the  lender. In case of a stock split you must have to return the increased number of shares at lower price. That is if the stock splits in a ratio 2:1 you have to return twice the number of shares at half the price.
 Short selling plays a big role in day trading and it safer than short term short selling as the over nigh risk is not present. Hedge funds and large institutions also uses short selling to make some money. Some wealthy investors also uses short selling to make profit. How ever a short trader must be a dedicated person and he must be aware of the market condition and general conditions to avoid possible losses.
*The actual dividend paid by the company goes to the new buyer. The lender of the financial instrument who holds the shares in margin account also expects dividend (He is unlikely to be aware that his shares are lent out for short selling). There fore the short seller have to pay the dividend amount to compensate.

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How to trade on stock markets using using fibonacci retracement levels

 Fibonacci retracement level is one of the very popular tools used for technical analysis in stock market.This method is used to determine the support and resistance levels. It is based on the key numbers which was first identified in thirteenth century by the mathematician Leonardo of Pisa, who is also called Fibonacci.
 Fibonacci retracement theory is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.
The start of the retracement level is '0%' and when it reaches 100% there will be a reversal to the original path.
Fibonacci series
The fibonacci numbers or fibonacci sequence is called as fibonacci series.
Look at this,
 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610........
 Here 'o' and '1' are the first two numbers in the fibonacci series. There after all numbers are the sum of previous two numbers.
 For example the third number '1' is the sum of first number '0' and second number '1'.The fourth number '2' is the sum of second number '1' and third number '1' and so on...
 This sequence can also be extend to negative like this
−21, 13, −8, 5, −3 , 2 , −1, 1, 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610...

Fibonacci ratio
The fibonacci ratios are derived from fibonacci series. The key Fibonacci ratios are 0%,  23.6%, 38.2%, 50%, 61.8% and 100%.

The key Fibonacci ratio is 0.618, which is also called 'the golden ratio',  is derived by dividing one number in the series by the number which immediately follows it. For example: 55/89 is approximately 0.6180 and 144/233 is approximately 0.6180.

The 0.382 ratio is found by dividing any number in the sequence by the number that is found two places to the right. For example: 89/233 is approximately 0.3820.

The 0.236 ratio is found by dividing a number in the sequence by the number that is three places to the right. For example: 21/89 is approximately 0.2360.

The 0 ratio is derived from :

  In addition to these ratios stock market traders use 50%, 76.4% and 78.6% levels.

The 76.4% (0.764) ratio is the result of subtracting 0.236 from the number 1.

The 78.6% (0.786) ratio is :

The 50% (0.50) ratio is not really a fibonacci ratio. It is derived from dividing the number 1 (second number in the series) by the number 2 (third number in the series).

Fibonacci retracement levels
  As I said earlier fibonacci retracement levels are used to trade on stock market, currency and commodity markets. It is also said that the key fibonacci ratios are 0%, 23.6%, 38.2%, 50%, 61.8% and 100%. 76.4% and 78.6% are also used by several traders. We also know that o% is the start and 100% is the reverse path. In the price movements of a security the 0.236, 0.382, 0.5, 0.618, 0.764 and 0.786 retracement levels act as the potential resistance and support point.
 I have earlier mentioned that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.
  Now let us come to the point.The Fibonacci retracement is the potential retracement of a financial asset's (stocks, commodities or currencies) original movement in price. Here the ongoing trend stops and new trend starts against its previous trend. In supports the price starts going lower and in resistance the price stops going higher. And then going against the trend.If it happens this is a correction and one can enter the counter here.
Trade using fibonacci retracement levels
  The fibonacci retracement levels are here divided in to three areas.
 Range bound area-Now suppose the security is trading between 38.2% and 23.6% levels.That is security gets support at 38.2% level and gets resistance at 23.6 per cent level or gets support at 23.6 per cent and resistance at 38.2 per cent level.If a breakout not happens there is a chance of range bound trading.
 Medium area -The security is trading between 50% and 38.6% levels.That is gets support at 50% level and resistance at 38.2% level or gets support at 38.6% level and resistance at 50% level.There is a possibility that market may go to the previous trend.
 Danger Area- The security is trading between 78.6% and 50% levels.That is the security gets support at 76.4% to 78.6% levels and resistance at 61.8% level (golden level) or resistance at 50% level and support at 76.4% to 78.6% level.Then the security may not go to the previous trend.
 Entry point for a trader
 If you are long on a security which is trading at danger area from the swing high, go for short with 50% level as the first stop loss and 38.2 per cent level as second stop loss.You may fix targets at 100%, 127% and 161.8% levels from the swing high.
 If the security is trading at danger area from the swing low you can go long on that scrip with 50% level as the first stop loss and 38.2% as the second stop loss.Targets are 100% level, 127% level and 161.8% level from the swing low.

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PAN Card; its importance and how to get a PAN card

Permanent Account Number (PAN) is an unique alphanumeric combination consists of ten characters (6 letters and four numbers) issued to all juristic entities identifiable under the Indian Income Tax Act 1961.It is almost equivalent to a national identification number. One can not open demat account with out PAN card.So it is necessary for trading in Stock Market.
 PAN is issued in the form of a laminated card, by the Income-tax department under the auspices of the Central Board for Direct Taxes (CBDT). One person can apply and obtain only for one PAN. Obtaining or possessing more than one Permanent Account Number is against the law.

 How to get a PAN card?
  You can get PAN card by applying at UTI website or NSDL website.
In order to apply for a PAN one must fill in one of the following forms.
If you are an Indian citizen, you have to submit your ‘Application for allotment of new PAN’ in Form 49A and if you are a foreign citizen you will have to submit your ‘Application for allotment of new PAN’ in Form 49AA.

Uses of PAN
It is used as an important Identity proof.PAN is Mandatory for financial transactions such as opening bank account, to file income tax returns and to purchase assets above specified limits.The primary aim of PAN is to bring a universal identification key factor for all financial transactions.It indirectly prevent tax evasion by keeping a track of monetary transactions of high net worth individuals.

Features
PAN is unique and permanent.Address change inside the country will not affect PAN.

The other areas where PANCARD is useful
 Earlier I have mentioned in this post PANCARD is must for trading in Stock markets.There are many other areas where Pan Card is mandatory or useful.
1. Pan card is necessary for filing Income tax return online (E-Filing).
2.Pan Card is useful for bank transactions.If you have a fixed deposit on a Bank that exceeds RS 50,000, a copy of PAN card needs to be given. If you are not submitting a copy of PAN card, the bank will deduct TDS of 20% or at the prevailing rate (whichever is higher).
3. It is useful in the purchase of real estate and vehicles.
4. In hotels, restaurants and travel agencies if your bill exceeds RS 25,000 you may have to produce a copy of PAN Card.
5. Jewellery Purchase- For Higher value jewellery purchasing Pan Card is essential.
For tele phone installation, Visa and other credit cards, and in some purchasing Pan card is necessary.
 To invest and file tax returns in India NRI's also need PAN Cards.

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