Friday, July 27, 2012

Small stocks crash on margin call triggers
Palak Shah / Mumbai Jul 27, 2012
Margin funding, used by top traders for leverage play in stock markets, has come under a cloud once again. Brokers in Kolkata and Delhi today offloaded huge positions in select stocks held by some operators who were under the regulatory scanner. This had a domino effect on several small- and mid-cap counters, leading to a crash in their prices. Many stocks, including Tulip Telecom, Pipavav Defence and Parsvnath Developers, crashed 20-40 per cent intra-day. The small- and mid-cap indices on the Bombay Stock Exchange (BSE) fell two per cent each, while the benchmark Sensex slid 1.2 per cent.
Traders are under stress after the market regulator Securities and Exchange Board of India (Sebi) tightened norms for derivatives and 51 of the 210 stocks are being moved out of the segment. As a result, margin financiers have been calling for more collateral for the past two days. Also, there were rumours of another report from the Intelligence Bureau naming more operators and instructions from the home ministry to crack down on hawala traders.
Margin financing refers to off-market deals where brokers ideally extend funds to traders for further speculation — mostly cash deals struck in the backroom — by keeping their other shares as collateral Thus, operators can’t provide cash in emergency or panic situations, brokers offload these shares. “Confidence and stability in markets will suffer till margin funding positions are made public,” said Deven Choksey, MD, K R Choksey Shares and Securities.

Note: But those who have joined my brokerage house/s (or in which I am the Partner or Associate), no positions were cut today, inspite of mayhem in the markets.  However, if the things go too bad from here (which is unlikely), the brokerage house/s could ask for additional collateral to maintain the margin. The key to be successful in margin trading is to keep a fixed cash (for margin) in the bank, but play in the margin (with 1.5% interest per month)---in case of emergency, use the fund from the bank. Again when the share moves up, siphon off  the additional cash and put it in the bank to be used in emergency. If you can do this in a disciplined way, then I am sure, you can make huge cash. But unfortunately many traders do just the opposite, they put all the funds from the bank/s into the share/s and when the price crashes, they cannot provide additional collateral--as a result the positions get liquidated by the brokerage houses. Moreover, there are processes, as how to re-build the positions after liquidation (Compulsory) by the brokerage house and then make money. Margin Trading is much safer option than F & O Trading because here the traders can control their "Risk--Reward-Ratio", unlike in Futures (Try to avoid Option Trading, except may be at times, using small cash, just to test the luck or when you are too sure), where the margin is generally fixed and huge. It is dangerous to trade with such huge margins in these kinds of markets. I have been shouting this time and again but then how many cares or cared---most of the new generation investors/traders think they are heros in the market. When, even for sharpening your knife you need to visit, a specialist, then for stock market, where your hard earned money is involved, why try alone (unless you are also a professional in the stock market).  Remember, when you are with a specialist, you might make losses temporarily, but that would have been much larger, if you had played alone!! It is because people like us have been slogging the things, day in and out and for years on (In my case it has been more than one and half decade). Playing a "Stock Guru" without knowing the ins and out of the game properly, could be potentially destructive. Therefore join me and learn the tricks of the trade (either through Paid Service or through Brokerage House)---how to maximize your returns in the market, with minimum funds. Now your account opening and 2 year subscription to the Paid Group/Service is free provided you start with a minimum fund of Rs. 2 (two) lakhs.
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