Vintage Cars
Till a few years ago, collecting vintage and classic cars and restoring them was a nascent business among enthusiasts with deep pockets who had a good understanding of car mechanics. However, it has become a serious business in the past few years.

Currently, there are just 5000 vintage cars up for grabs. But the demand is huge and hence the price of these cars is also quite high. Buying a vintage car will make you dearer by at least Rs. 5 crores and when it comes to the upper limit, well..lets not talk about it. However, such investments offer lucrative returns ranging from 12% to 25% within a span of 10 years. The sale of these national treasures is prohibited abroad by Indian law and that is what saves these from further declining in number. Owning a vintage car can be a matter of pride and hence cars such as those custom-made for Maharajas or used by the womenfolk of a royal household are worth a fortune. Such a rare classic promises to bring unimaginable returns and pride of ownership.

Wine
This might amuse many but for ones who can resist gulping it down, wine can become serious investment avenue. It is proving to be one of the most exotic alternative investments with returns at 10-50% a bottle. But the key to success is to stay invested for long. The investment horizon for wines to mature can be as high as 25 years. You can invest in wines in 3 ways:

• Buy bottles: This is the most traditional way to invest in wine. A thorough examination of the brand, vintage, longevity, history of the producer, consistency, score and storage conditions are essential to determine the quality of the wine. Moreover, it is advisable to store your wine in the country from where you have procured it rather than importing because import duty is much higher than the storage costs abroad.
• Wine funds: You can also invest in wine through specialty funds that buy wine. The funds will send you a share certificate with details of your investment, including a net asset value of the share. They will also give you regular updates on the value of your wine. The minimum lock-in period varies across funds. At the time of exit, you receive the net profit depending on the growth in the value of the wine.
• Wine futures: If you want to invest in wine even before it is bottled, opt for wine futures. These are also called wine primeurs. Investing in wine that has not been tasted is considered riskier than buying bottles or buying wine funds. However, if you are confident about the returns then there is no harm in it.

Another advantage of investing in wine is that it is not liable to capital gains tax (CGT), because of a tax regulation called the “Wasting asset rule”. This says that if an asset has a life of 50 years or more no CGT is payable on it. Hence, wine can be a very profitable investment option if done the right way.

Stamps and coins
Stamp and coin collection has been a hobby for many people for many years now. But now, it has emerged into an investment option. An attractive feature of collecting and investing in coins is that it is much cheaper and affordable as compared to other collectibles. Hence, it is not just for the High Net worth Individuals. Rare stamps offer a fine safe investment, where the investor’s capital is guaranteed, and is coupled with the potential for strong returns in the medium to long term. Stamps are a long term investment where you can expect returns in the range of 10-15 % over 5-10 years horizon. The record for the costliest Indian stamp stands at about Rs. 74,50,000 for a single example of the 1854 blue and pale red ‘Four Annas’ which was bought in October 2010. However, rare stamps are regularly sold for Rs. 50 lakhs and more. Rare coins can be as expensive as Rs 5 lakhs. One can expect a return of around 15% on rare coins. You can buy coins through online auctions as well as from rare coin dealers. However, one needs to do research regarding the rarity and desirability of the stamps and coins before investing.

Paintings
Buying art as an investment is a relatively new phenomenon in the Indian market. Of late, people have started recognizing the fact that paintings are more than just a pretty wall adornment. If well-picked, they also have the potential to translate into decent sums of money. Consider this, a Pablo Picasso painting was sold for $106.5 million at Christie’s in New York, setting the world record for any work of art sold at an auction. This art fever is catching up in India as well with several HNIs willing to shell out huge sums of money to buy such extravagant pieces of art. And it’s worth investing as the returns from investing in artwork are very rewarding. But before that, one must see how much does one need to invest in order to get these high returns. If you are really serious about investing then you must have at least Rs. 1 crore with you and preferably much more. Because the more funds that you are willing to put in, the more returns you will get. Returns can range from 15% to 20%. During the time frame between 1995 and 2001, the annual appreciation in the value of investments in art was only around 5%. By 2006, it had picked up and there was great euphoria around investment in paintings.

Vintage Guitars
You would be thinking that guitars are purchased only by guitarists. But that is not true. In fact, for some people, guitar is a form of art; wall art or as a free standing sculpture. But now, buying guitars, especially vintage guitars, has become a financial investment. Well-known brands such as Gibson and Fender can make great investments. A Vintage Guitar can start from anywhere around Rs 20000 and might end up into Rs 5 lakhs or even more. A vintage guitar could give you returns in the range of 10% to 50% depending on its make and its age. Generally, guitars made before World War II are the most sought after and hence provide the greatest returns. If you really want to invest in these, there are various exhibitions held in India which showcase these musical masterpieces. Apart from this, there are musical shops as well which sell vintage guitars such as Jhankar, a Kolkata based music shop which deals in vintage guitars. For guitar enthusiasts, this is a double treat because they are able to hold on to a musical instrument which they love and also earn income from it.

Memorabilia
The memorabilia market is vast and is growing at a fast pace. Memorabilia could be anything, from Sachin Tendulkar’s cricket bat to Mahatma Gandhi’s spectacles. It could be anything that has some emotional values attached to it. The largest markets, however, are sports and entertainment, and the most popular trading is done through auction houses, specialty dealers, and internet auction sites like eBay. Make sure you invest in the big names in sports, entertainment or historical memorabilia as these will increase in value over time. A Madonna costume was once sold at an astounding Rs. 1.25 crores. A baseball bat was auctioned for an amazing Rs. 15 crores. Similarly, a Superman comic book was auctioned for Rs. 11 crores. When it comes to returns, you can easily earn in the range of 10% to 15% in a span of 10 years. I believe we all remember Vijay Mallaya’s pride in buying Tipu Sultan’s sword some years ago.

Luxury Watches
The main features to look out for our rarity, complexity and the condition which makes all the difference when looking for a luxury watch. But while there are major gains to be made, it takes a good eye to know the difference between a clever investment, and a waste of time. In such a vast and specialist industry where prices range from $1,500 into the millions, it’s difficult to know where to start. But as a prospective investor, you can head to an auction to find some of the most lucrative deals on luxury time pieces. While looking for rare watches, there are to brands which are considered to be meant for the ultra-rich, Rolex and Patek Philippe. An investor who purchased an 18 carat white gold Patek Philippe for $430,000 in 1995 can now sell it at its current market value which is a whopping $3.47 million. So the returns are very promising. And when you consider the fact that it is a recession proof investment, you have all the more reason to smile. The most important thing that one needs to keep in mind while investing in luxury watches is not the amount that you are going to invest, but the quality and brand of the watch.

Having read about all these, it should be well understood that most of the above do not have an organised market where you can buy and sell these at a market rate. You have to put in a good amount of efforts in finding the right buyer/ seller and the getting the right price. Another important key to investing in any of these is the time element. Most of these investments generally pass from generations to generations and keep appreciating in value over time.
So folks, now if you happen to win a lottery or hit a jackpot, you know how to utilise it.

Happy investing.
Rohit Roy and Praveen Bajaj

Related posts:

1. The Best Investment for Children in India
2. Investing in Mutual Funds – Dividend or Growth Option?
3. Mistakes Mutual Fund Investors Must Avoid

Dividend Vs Growth Option

Dividend Re-Investment Option

Many AMCs might offer you Dividend re-investment option, under which dividend declared is actually re-invested in the same fund at the then prevailing NAV. This option is not very different from growth option except the fact that re-invested dividend is also eligible for benefit under 80C. However, dividend declared attracts dividend distribution tax (DDT) and compulsorily gets invested in the same fund. This beats the purpose of declaring dividends and leads to un-necessary payout of DDT reducing the fund size. Not many AMCs have this option and hence the same has not been declared in details here.

Let’s Talk Numbers

Back to dividend and growth option, apart from the above mentioned qualitative difference, I tried to analyze the quantitative performance of two options. I extracted data for ELSS of 4 popular AMCs and compared the returns from growth and dividend options. Dividend received from the two options in various financial years were assumed to be invested at the then prevailing fixed deposit rates.

Following is the result-

I find that dividend option is slightly better even at the then prevailing conservative interest rates. In case you can invest the dividend income at a better rate, you overall return from the investment increases.

How do they compare?

Benefit of opting for dividend option is the flexibility that you get out of getting the cash and being able to decide what to do with the available liquidity. In case you think the fund is better, you can any which way invest the dividend in the fund back. Cost that you pay for it is the DDT that AMC deducts before paying the dividend to you. From my analysis, even after paying the DDT and investing at the FD rates, dividend option gives slightly better returns

Moneybol Recommendation

Thus what it all boils down to is the re-investment risk. In case you can manage this re-investment rate properly, it is recommended to opt for dividend option. But in case you are a conservative investor who does not enjoy liquidity a lot and want to get worry-free investment, growth option is better. With online investing (read here) made easier, you should decide for yourself how to invest rather than depending on financial advisors for such small but important decisions.

Whatever it is, take informed decision and not arbitrary ones.

Happy and profitable investing.

Authors – Priyesh Kesharwani and Praveen Bajaj

Related posts:

1. ELSS Mutual Funds
2. ULIPs or Mutual Funds – Comparison
3. How to Invest in Mutual Funds in India

This is the time of the year when most of us get a call from the HR department to file our investment declarations so that appropriate TDS can be deducted from our monthly incomes. Consequently this is the time when we start thinking about tax planning (or tax saving to be more precise). Though tax planning is a round the year exercise, but its not late if you start even now. After all, investing Rs 1-1.5 lacs in about 35 days is not is not a tough job. But it might become a tough job if you do not have an idea about where to invest, what are the best investments which will satisfy your RETURNS-LIQUIDITY-SAFETY trinity. I will try to bring to your notice some of the simple and popular investment avenues (or any expenditures which can be instrumental in fulfilling the “tax saving” purpose of investment.

The Income tax department allows you deductions for various investments/expenditures under different sections all of which have different limits of tax deductions. We will first know about the investment avenues under various sections and then about the limits for these sections.

Under Section 80C (Limited upto Rs 1 lac)

Monetary limit

As written above, the upper limit for deduction under section 80C is fixed at Rs 1 lac. Thus total allowable deduction, combining all of the above instruments cannot exceed Rs 1 lac. You can have a combination of the above mentioned investment/expenditures to exhaust the limit (subject to individual limits on some of the instruments)

I like to mention here that I have listed only the popular and simple avenues above and not all of them. There are a number of clauses which might fit your case better. You can have a detailed list of the various deductions at Tax department’s website here.

There are a number of other sections under which deductions can be availed like 80D, 80E, 80G and so on. I will discuss these sections in next article.

Happy investing till then!! Thanks

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2. 5 top picks of the year 2011
3. Financial Planning Calendar

What do I mean by Arbitrage

It is a kind of trading where traders earn profits by exploiting price difference of similar or identical financial products on different market or in different forms and this Arbitrage exists because of market inefficiencies.

Example: – A program can buy or sell the future stock of a commodity like gold depending upon the spread level of same product of different expiry month contract in the Indian commodity market (MCX).

Let us take the October and December contract of gold. Since current month for gold is October, under all normal circumstances, we will have more liquidity in the October contract and comparatively December contract does not have such liquidity. So in the spread trading, when we say buying a spread, it would typically mean we are buying the October contract and selling the same quantity of December contract and the price difference of gold between two contracts is known as the spread. Similarly, with sell spread we sell the current contract i.e October contract and buy the December contract. As a normal trading rule, our aim is to buy the spread at low levels and sell at high levels or vice versa. For instance-

If we are of the view that this difference will increase, i.e in absolute terms, the spread between October and December contract will decrease, so we will sell the spread at current levels. We go short on October contract and go long on December contract. After 5 days, the prices increase as follows-

Thus we make a gain of Rs 34 on gold spread. It needs to be mentioned here that this spread has equal chances of decreasing as well in which case we would have lost money on the strategy. The key in arbitrage lies in executing the buy/ sell spreads at required levels with very less impact cost. This is where technology comes into play.

How technology/algorithms can help in carrying on arbitrage

Algorithmic trading refers to automated trades executed through software programs, which do not require humans to place orders every time. There are computer programs written to buy or sell a security, currency or commodity at a given or predefined level. These programs are so fast that people, who look at various developments and decide trade, would be left way behind because a machine has done it in milliseconds. So it has become extremely difficult to earn profit for the manual traders. The future belongs to traders with superior technology in case of arbitrage business. The National Stock Exchange (NSE), which controls more than three fourths of the trading volumes, has approved applications of 200 of its members, roughly a fourth, to trade using algorithms.

In program trading we normally gives inputs like the required buy spread and sell spread to execute the trade and the number of pair quantity etc. Some algorithms do not even require any input. Algorithms can be made in such a way that the program start quoting in the illiquid market and when the system gets a fill in this illiquid market then it sends a market order in the liquid market to grab the required buy spread.

What are the advantages of using algorithms?

• Efficiency of algorithms comes from the fact that the whole process can be done in a millisecond’s time. Thus saving Time.
• Accuracy of execution improves as time lag is reduced and better prices can be quoted
• Since the system doesn’t get fatigued, continuity of process is ensured

There are so many other way to do arbitrage like calendar spread, multi exchange trade, main mini spread, different exchange of two different countries and other ways also and program trading used in those all types of arbitrage.

Author: Bratin Mukherjee, Analyst, Kredent Group

Praveen Bajaj, Head – Research, Kredent Group

Related posts:

1. All about algorithmic trading
2. Options glossary
3. Open Interest – Essential Trading Tool

Thanks and happy reading

ASSIGNMENT – Notice to an option writer that an option has been exercised by the option holder.

AT-THE-MONEY – An option whose strike price is equal – or approximately equal – to the current market price of the underlying

BEAR SPREAD – A spread which is put on with the expectation that futures prices will decline.

BULL SPREAD – A spread which is put on with the expectation that futures prices will rise.

BUYER – The purchaser of an option, either a call option or a put option. Also referred to as the option holder.

CALL OPTION – An option which gives the option buyer the right to purchase (go “long”) the underlying futures contract

CLASS OF OPTIONS – All call options – or all put options – on the same underlying futures contract.

CLEARING CORPORATION – The Board of Trade Clearing Corporation, whose function it is to clear (match) all purchases and

CLOSING TRANSACTION – A purchase or sale that liquidates -offsets – an existing position. That is, selling an option that

COMBINATION – A position created either by purchasing both a put and a call or by writing both a put and a call on the same

COVERED OPTION – An option written against an opposite position in soybean futures.

CREDIT SPREAD – A spread in which the value of the option sold exceeds the value of the option purchased.

DEBIT SPREAD – A spread in which the value of the option purchased exceeds the value of the option sold.

DELTA – The amount by which an option’s price will change for a unit change in the underlying futures price. With the

EXERCISE – The action taken by the holder of a call if he wishes to purchase the underlying futures contract or by the holder

EXERCISE PRICE – Same as strike price.

EXPIRATION – The date after which an option may no longer be exercised. Although options expire on a specified date

FUTURES CONTRACT – A contract traded on a futures exchange for the delivery of a specified commodity or financial instrument at a future time. The contract specifies the item to be delivered and the terms and conditions of delivery.

FUTURES PRICE – The price of a particular futures contract determined by open competition between buyers and sellers

HEDGE – The buying or selling of offsetting positions in order to provide protection against an adverse change in price.

HOLDER – See Buyer.

IN-THE-MONEY – A call is said to be in-the-money if its strike price is below the current price of the underlying futures

INTRINSIC VALUE – The dollar amount that could be realized if the option were to be immediately exercised. In other

LONG - The position, which is established by the purchase of a futures contract or an option (either a call or a put) if there

MARGIN - The sum of money or securities, which must be deposited – and maintained -in order to provide protection to

MARGIN CALLS - Additional funds which a person with a futures position or the writer of an option may be called upon

NAKED WRITING - Writing a call or a put on a futures contract in which the writer has no opposite cash or futures market

OPENING TRANSACTION – A purchase or sale, which establishes a new position.

OUT-OF-THE-MONEY – A put or call option, which currently has no intrinsic value. That is, a call whose strike price is above the current futures price or a put whose strike price is below the current futures price.

PREMIUM - The price of an option – the sum of money, arrived at in the competitive market, which the option buyer pays and the option writer receives for the rights granted by the option.

PUT OPTION – An option which gives the option buyer the right to sell (go “short”) the underlying futures contract at the strike price on or before the expiration date.

PRICE SPREAD – The purchase and sale of two options covering the same futures contract with the same expiration dates but different exercise prices.

SELLER - Also known as the option writer or grantor. The sale of an option may be in connection with either an opening transaction or a closing transaction.

SERIES - All options of the same class having the same strike price.

SHORT - The position created by the sale of a futures contract or option (either a call or a put) if there is no offsetting position.

SPREAD – A position consisting of both long and short options (all calls or all puts). For example, a long position in a call with one strike price and expiration and a short position in another call with a different strike price and/or expiration.

STRADDLE - A combination in which the put and the call have the same strike price and the same expiration.

STRIKE PRICE - The price at which the holder of the call (put) may exercise his right to purchase (sell) the underlying futures contract.

TIME SPREAD - The purchase and sale of two options covering the same futures contract but with the same exercise price, but different expiration dates.

TIME VALUE - Any amount by which an option premium exceeds the option’s intrinsic value. If an option has no intrinsic value, its premium is entirely time value.

UNCOVERED OPTION – The sale of an option without a position in the underlying futures contract.

UNDERLYING FUTURES CONTRACT - The specific futures contract that can be bought or sold by the exercise of an option.

WRITING – The sale of an option in an opening transaction.

Related posts:

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2. Open Interest – Essential Trading Tool
3. Job Opening: Options Trading with Kredent, Kolkata

Here is my take on recent monetary policy review-

Rates

Reserve Bank of India (RBI) continued treading on its rate hike road yet another time. This twelfth rate hike in last 18 months did not come as a surprise especially after inflation, (measured by any index, right now WPI) increased by 9.78% during August compared to 9.22% in the prior month. The repo and the reverse repo rates after the hike stand at 8.25 percent and 7.25 percent respectively while the CRR (cash reserve ratio) and the SLR (statutory liquidity ratio) rates stand unchanged at 6 percent and 24 percent respectively. There were muted expectations in the markets that policy rates might be kept at the same levels while SLR or CRR ratios might be altered. In my opinion, these ratios are used for different purposes.(Read about different policy rates and purposes) With liquidity conditions mostly in shape, barring last week when borrowing on Repo window increased to even around Rs 1,00,000 crore due to advance tax payment, RBI is unlikely to tinker with CRR or SLR atleast in the current scenario.

Banks

Commercial banks are likely to see deterioration in the NIMs. RBI has been stressing on the need to increase the deposits growth and going easy with credit growth. While credit growth has moderated to around 20% in August’11 compared to 21% in March this year, moderation is not substantial. Deposit growth still trails at 18% presently compared to 16% in March. As indicated by SBI, this increase in costs will be passed on to borrowers in a short time. With receding demand, I don’t see a lot of takers at higher rates level. Deposit rates might also see an upward revision simultaneously to stimulate the deposit growth. This, in all probabilities is likely to eat up a portion of banks’ NIMs.

Inflation

On inflation front, RBI has continued with its tough stance (RBI Statement) against inflation. However, the guidance given on inflation this time has been more optimistic than last time. In its Policy review statement, RBI has mentioned its expectations regarding softening of inflation-

• “As monetary policy operates with a lag, the cumulative impact of policy actions should now be increasingly felt in further moderation in demand and reversal of the inflation trajectory towards the later part of 2011-12”
• “Inflationary pressures are expected to ease towards the later part of 2011-12. Stabilisation of energy prices and moderating domestic demand should facilitate this process”
• Views on normal monsoon and a record production of grains “Monsoon rains so far have been normal. The first advance estimates for the 2011-12 kharif season point to a record production of rice, oilseeds and cotton, while the output of pulses may decline”. This might be taken as an expectation that food prices might decrease

However, it also expects that for the coming few months, inflation will remain high. It also gives certain factors which are likely to continue adding to inflationary pressures – “….there is still an element of suppressed inflation. Though global oil prices have moderated, the pass-through to domestic prices remains incomplete. Also, current administered electricity prices are yet to reflect increase in input prices, even as many states have initiated increases. Food inflation is at near-double digit levels, despite normal monsoons, underlining the fact that it is being driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon. The inflation momentum, reflected in the de-seasonalised sequential monthly data, persists”.

My Take

With growth scenario slowly also sluggish, many analysts have started expecting a pause in the rate hiking spree. Global outlook has only worsened in the recent months. Exports are unlikely to continue with the current momentum due to this. On domestic front, IIP growth has been moderating with extreme volatility. This has led Central Bank to indicate that there are downside risks to 8% growth projection in the July review.

I will take it more as an indication from RBI that the rate setting committee is prepared to see the current high levels of inflation for coming couple of months and expect it to start moderating from atleast the last quarter of the current fiscal. Stance of monetary policy has been kept unchanged clearly to keep inflationary expectations at bay. Further rate hikes cannot be ruled out but I feel that the same will be taken only if inflation figures increase beyond this point. Base effect will be pretty high from this point onwards especially during December and January due to over 130 bps Month on month increase during these months in the last fiscal. This atleast on the face will keep inflation figures under control and induce a wait and watch approach of RBI.

Author: Praveen Bajaj

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3. India Inflation : WPI March 2010

Opportunities in core finance careers in the Capital market are innumerable – ranging from analysis & trading of different asset classes to brokerage to investment banking & private equity. The jobs with no front end involvement are those of Analysts & Traders. Of them the most lucrative is that of a Trader.

Not many are aware, but trading can be pursued as a full time career and not as a mere part time investment opportunity.

Two factors which create significant opportunities for traders are Volumes on major exchanges across the asset classes viz equity, commodity and currencies, which have more than doubled in the last 2 years, and increased number of instruments and contracts available for trading in the Indian capital markets.

What kinds of Trading Careers are available?

There are many kinds of trading – starting at arbitrage & jobbing and escalating to Options & Multi-Asset trading with opportunities in Spreads, Options, Momentum & Technical Trading lying in between. With a market capitalization of over 67 Trillion rupees – and growing – there are great opportunities in the Indian Markets. Not many are aware, but trading can be pursued as a full time career and not as a mere part time investment opportunity.

Two factors which create significant opportunities for traders are Volumes on major exchanges across the asset classes viz equity, commodity and currencies, which have more than doubled in the last 2 years, and increased number of instruments and contracts available for trading in the Indian capital markets.

What you need to become a Trader?

Trading is a career meant for highly self motivated individuals who are capable of analyzing and acting upon information at a rapid pace – daily fluctuations in prices can cause severe changes in fortune. Traders need to be able to work successfully independently with little supervision. If they are unable to, they find themselves out of a job. It is possible to become an independent trader, provided you have the knowhow and necessary tools – capital, a terminal & analysis software.

How to get started in a Trading Career?

There are few, if any, recognized institutions in India which provide formal education on the trading profession. The basics of capital markets are taught, however, proper instruction on trading and analyzing securities, commodities & currencies are neglected. The lack is made up by institutions hiring graduates, engineers & MBAs as traders and then spending thousands of rupees training them to do the job they were hired for.

The other option – if you are not hired right out of college for a trading position – you can consider doing a certified professional trading course and subsequently seek trading position with any of the proprietary trading firms.

What is the Career Path of a Trader?

The basic job doesn’t change – traders are supposed to develop their skills and use their experience to generate higher profits in trading. Career paths for traders consist of expanding on 3 successive levels –

• Volume of Exposure – capital amount available to a trader for usage
• Strategies Utilized –Jobbing, view based spread trading, technical analysis, Option trading, Greeks trading, Multi Asset Trading

• Asset Classes – equities, commodities, currencies & derivatives

Is this the right career for you?

After receiving all the details of trading as a career, the last thing you must gauge is if trading is the career for you. If you enjoy a fast paced work environment, being independent & fast in your decision making, have a good head for numbers and like creating opportunities for yourself then trading might be a perfect fit for you.

Related posts:

1. Job Opening: Options Trading with Kredent, Kolkata
2. All about algorithmic trading
3. Open Interest – Essential Trading Tool

I came across this nice one pager on US Debt ceiling, which explains in simple and brief manner regarding the issue. It says,

Why reaching a deal before 2nd August was so important?

If the debt ceiling were not raised by August 2, the U.S. would have defaulted on some of its obligations. Some of these obligations were interest payment on the treasury bonds, social security check, medicare and medicaid payments and federal salaries. Default on the US debt could have meant higher borrowing cost. Foreign investors like China and Japan and other countries altogether holding nearly half of outstanding Treasury debt, could have reduce their purchases of Treasuries on a permanent basis, and potentially even sell some of their existing holdings which woul d have undoubtedly led to an increase in the treasury borrowing costs. As nearly all interest rates use U.S. Treasuries as a benchmark if these rates would have climbed, then the interest rates for products like mortgages, personal loans and credit cards would have increased as well.

Though the plan has been passed, the report discusses the impact of this issue on the economy, dollar and gold, it says –

The plan seems to be fallible in the long -run, thus, dollar might gain strength in the short-run (also due to flight to safety) but remains weak in the intermediate to long -term. Currencies like yen, swiss franc are expected to exhibit strength while INR might remain range-bound. The yields in the US bond markets are expected to go up with the debt rating still under review with Moody’s.

This paper makes a good read for knowing the potential impact of this move on the economy given the ongoing situation in Euro region, growth prospects of US economy and its relation with other emerging economies.

Also would like to share with you this small picture which summarizes the effect on stock markets nicely. (Image courtesy Mr Vivek Bajaj, Kredent)

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First let me explain you, what is the open interest and why is it important?

The word ‘open’ in open interest itself says that the contract is open. Open interest means unsettled derivative contract for a specific underlying security like Future and Option. Simply it can be also summarized as contracts outstanding on a particular day.

How can the contract be open??

For trading in future market there must be two parties involved. One is buyer and other is seller.

1) Suppose the buyer Mr. A buys contracts from Mr. B, the open interest is 1 and the contract is said to be OPEN.

2) Again the same contract is sold by Mr. A to Mr. B the open interest will become 0. The contract is simply closed.

3) If the contract is sold to the new party i.e., Mr. C, The open interest will remain same because Mr. A closes the contract but Mr. C open a new contract.

Now I am sure you must be clear that why it is called an open contract.

At this point one question must be coming in your mind that impact open interest in the market?

Before giving my view on this, following should be kept in mind:

• Only an increase in volatility or open interest does not necessarily indicate anything about the future price movements
• If the open interest increases suddenly it is likely that the new information about the underlying security is being revealed which may increase the volatility
• It also shows that there is strength behind the current price movement. Overall increase in open interest implies flowing of new money into the market, and hence we can conclude that the present trend will continue.

To what extent is the concept of open interest important for a trader and specifically for an option trader?

• An option trader can draw certain conclusion by monitoring changes in the open interest figures both during the day as well as comparing End-of-day data
• An increase in open interest along with an increase in price is said to confirm an upward trend.
• An increase in open interest along with a decrease in price confirms a downward trend.
• If the prices increase or decreases while the open interest remains flat or declining may indicate a trend reversal (change in the direction of the market).

CALCULATION OF OPEN INTEREST

It is important to know that there are two type of trade, one is opening trade (purchase) and another is closing trade (selling or squaring off).
In simplest words Open interest is calculated by adding all the opening contract trades and subtracting all the closing contracts trades. Let me give you another example:

Take the above example three traders Mr. A, Mr. B, and Mr. C.
1) Trader A enters a trade by buying 1 contract from Mr. C – Open Interest increases to 1

2) Trader B enters a trade by buying 4 contracts from Mr. C – Open interest increases to 5

3) Trader A exits by selling one contract to Mr. C – Open interest decreases to 4

4) Trader C enters a short trade by selling four contracts to Mr. A – Open interest increases to 8

RELATION BETWEEN PRICE AND OPEN INTEREST AND ITS IMPLICATION

The Relationship between the price and open interest can be summarized by the following table:

BOTTOM LINE

It is important for trader to understand the concept more clearly to sustain strongly into the market. While analyzing the future and options market remember considering open interest to get more accurate expectation. Open Interest gives a fair idea to the trader that regarding market gaining strength or getting weaker.

Remember knowledge is a tool for the trader to make money. Any type of query, advice and suggestions are appreciated. It’s your money, invest wisely.

Author: Satish Tayal, MBA (ISB&M) is an intern at Kredent Finance

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2. Options glossary
3. All about algorithmic trading

I have come across a lot of people who shy away from taking a credit card for they think it is very complicated and you always have to pay a very high interest rate on the same. I will tyr to burst this myth through this article and suggest 10 ways which would help you to use this product wisely.

Precaution 1:  Keep Your Credit Card Private
Never lend your credit card to anyone, including those that you know.  Do not give out the number or the CVV code.  Any other personal information or documents that are linked to your credit card is also dangerous to give out, such as your name, address, and phone number.  This information can easily be used to acquire additional credit cards in your name, if it is not used to steal from your already created card.

Precaution 2:  Keep Personal Records of Transactions
Whenever you use your credit card, be sure to record the data properly and clearly on a computer or paper.  Any mischievous transactions that show up on your statement should be looked into, and will be much easier caught if you have your own personal records.

Precaution 3:  Be Aware of the Minimum Purchase Regulation
Some stores only allow the use of a credit card if the purchase you’re making is higher than a certain amount.  Since these stores are charged a fee for each credit card swiped, they loose money on small consumer credit card purchases.  Make sure that you always have money in addition to your credit card.

Precaution 4:  Know your due date well and interest free credit period
Most of the banks display an interest free period of certain number of days in their marketing material. This can be from 30 days to 60 days. Keep in mind that this interest free period is the maximum allowable period and is not same for all the transactions. Your actual credit free period is from date of transaction to the due date of the bill. You would be charged interest, if the bill amount remains unpaid from due date onwards. So know your billing cycle i.e the time period between bills, which might be 1st-30th of the month or 21st-20th of next month and so on.
Infact, knowing this, you can use card intelligently by making most of the purchases towards the beginning of the billing cycle and enjoy maximum interest free period.

Precaution 5:  Know about your interest rate and calculation methodology
Most of the banks charge hefty interest rates on credit card outstanding. So know at what rate you are being charged interest. In some cases, this is as high as 36-48% per annum, compounded monthly. Be aware of this rate and how interest amount is arrived at. Most of the banks charge you when the due amount is not paid within due date, but the amount is the total outstanding amount in card, irrespective of whether it is due or not. Because of this, you pay interest on any purchases made after the billing cycle and would be due for payment in your next billing cycle.

Precaution 6:  Avoid withdrawing cash from credit card
For the simple reason that you don’t get any interest free period on cash withdrawals. You pay interest on amount withdrawn as cash from credit card from that day onwards at the existing rate of interest on the card.

Precaution 7:  Be aware of various charges associated with the card
This might be annual maintenance charges (which, to my knowledge do not exist on any of the cards now. So if your bank is still charging the same, it is time to get a new card). Apart from this, there might be many other charges such as cash withdrawal charges, charges for depositing cash at branches, charges for specific purchases done and so on. Be aware of these charges before using the card.

Precaution 8:  Be Cautious Online
Online shopping is very popular.  Whenever you purchase items online, first make sure that the website you are visiting is secured and safe.  If you are unsure if the website is safe or not, do not purchase anything from it.

Precaution 9:  Review Your Monthly Credit Card Statement
Review your statements often, and be sure to pay them off regularly to avoid high interest.  Make sure that you receive your bill monthly, and keep track of this.  If you do not receive your bill when you expect it, speak with your credit card provider to make sure that there has been no fraudulent change of address.

Precaution 10:  Immediately Report a Lost Card
If your card is stolen or you realize that you have misplaced it, the smartest choice to make is to report it and get the card cancelled immediately.  This reassures that no one will be able to use your card if they find it or have stolen it.
CONCLUDING this, remember, credit card is just a tool through which you advance your purchases which you would have made a month later. It is you who ultimately pays for the purchases. So last, but the most important, KNOW YOUR SPENDING LIMITS and spend accordingly.

Bio: Maria Rainier is a freelance writer and blogger for First in Education where she’s recently written about sales management careers along with a piece on natural science careers. In her spare time, she enjoys yoga, traveling, and working with origami.

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1. Pros and Cons of Credit Card
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