The stock market provides a vast number of tools to help the investors earn money. Today we look at a few commonly used tools in the stock market which attracts investors and also helps in leverage their capital for better investment returns. Let’s begin with futures. A futures contract is one which helps two business parties strike a deal with a investor to bank on at a time of financial crises. Let’s take an example of Mcdonalds buying potato from a farmer at $5 per kilogram. In such a ideal situation Mc donalds makes a profit by selling French fries and the farmer gets his profit by selling them. Now a few days later, there is an increase in the number of potatoes as another farmer enters the business, the price drops to $2 per kilogram and hence Mc donalds make huge profits while the farmer loses out. Then we consider a situation where in there is a severe plant disease in the farm village and the price of potato increases to $8. Mc donalds is unhappy as their profits vanish. These are two situations which might be recurring and the two might want to stop this. Here is where a futures contract comes in. An investor is bought in and he sets the price to $5 per kilogram. In case the price of potato increases, the investor pays the remaining amount to Mc donald’s keeping their input cost the same. In case the price of potato decreases and the investor keeps the profit by selling the potatoes at a lower price to Mcdonald’s . hence the risks and rewards are transferred to that of an investor.
Posted by Angela on Sunday, March 27, 2011
Posted by Angela on Friday, November 26, 2010
I m sure that most of us would have used this service but were are really not able to relate what actually a custodian banks mean. Well let me give you a simple example.When you buy a share or stock from the market, you need to have a demat account with your bank which would take care of your custodies. The shares that you buy is taken care of by the bank. Huge organizations like fidelity and others don’t opeate their share markets themselves. They allow banks to take care of such needs and the banks earn by taking care of their securities.So whenever the company of whose shares you have bought takes some action, then the custodian bank comes to you and provides you information on the custody
Posted by Angela on Saturday, November 20, 2010
A fire argues?When a company is started, it needs capital to perform its business. it can raise money through issuing securities . These securities can be in the form of equity and debt. Equity is when the company issues a public offer (IPO) and investors assume ownership which takes the form of stock. In case of debts, the company offers bonds, debentures and various other certificates. Investors seeking money choose between the two. If they want interest on half yearly basis then they go in for debentures and are really not interested in the growth of the capital whereas an investor in equities always in concerned on his money growth.Debt is concerned senior to equity ie when a company goes on a liquidity crisis the investors with debts are paid first followed by those with equities. Hence choose wisely before you invest your stock anywhere!
Posted by Angela on Thursday, November 11, 2010
The jobs cuts in the US are rising at alarming rate and most of American business is been taken by countries like China, India and Brazil. Its not that these countries didn’t undergo the malevolent recession period, but these countries should great courage in combating this so called dementor. Mortgage loans as we all know was one of the big causes that started recession and we all know that where its taken us. So what are the lessons learnt ? Quite a few might agree that companies which had relaxed rules became strict, perks and bonuses reduced. Vacations diminished and the so called lavish spending came to a grinding halt.So it is necessary that when there was aint any crises, people all over the world had money and this explained the lavish spending. So didn’t we have any self control over ourselves or was it just ‘live a life ‘ attitude that made us spend in such a manner. Man , according to me must not overdo anything even if he has the money or power to do it. Life simple lived is far better than to live artificially.
Posted by Angela on Friday, July 23, 2010
Having a house of your own is a dream seen by a million people and is usually an inspiration to other people to get out of their rented ones A own home for many actually represents freedom where in one can do whatever he wants to. So let’s take an instance where in you have a good job, but not enough money to buy an own house. So what can you do about it? Mortgaging would be the best option. A bank or a housing finance company would consider your application for a mortgaged loan taking into account your capabilities and the net worth of the house. If both seem satisfactory then the bank/institution issues the loan keep the house documents as mortgage. The interest is charged monthly and may be after a certain period of time, may be ten to fifteen years, when the loan is completely paid, the documents are returned to the owner. So how does the bank gain? The bank charges the borrower a certain interest through which the bank makes great money. And whats our advantage – We get a loan at the required time and usually after a certain period of time; the value of the land appreciates. Hence compared to stocks/shares this seems to be a good investment for long time business people.
Posted by Angela on Wednesday, July 21, 2010
These days mutual funds have become very common and we can see a large number of people investing in it. So lets have a basic knowledge on how the mutual funds concept work. Going by the definition, a mutual fund is a collection of stocks/bonds or even the combination of two. Hence mutual funds represent a company which brings together a group of people and invests their money in stocks, shares and bonds. Each investor would have a portion of the shares or stock of the company. And the most important point as to where you earn your money from – 1.Dividends is paid when the company makes profit and also you get interest on bonds.2. If the securities are sold at a higher rate than the profit incurred would be distributed to the investors.3. If the value of the shares increases then you can sell the shares in the market at a profit. The advantages of a mutual fund are that your risk is evenly spread out. Mutual fund companies usually have stocks of a large number of companies. Hence loss of any industry wouldn’t hurt you much instead of being an individual investor. As mutual fund companies buy and sell at large, their transactions costs are minimum compared to individual ones. Hence investing in a mutual fund is a good way to use your money.
Posted by Angela
Well if you’re excited about shares, then bonds are something a little boring to the person who would love to trade his money during the swings in the market.But speaking technically, it’s safer to keep a part of your investments in bonds.So what are bonds exactly? When a person starts a company, he requires a large amount of capital and this large amount of sum cannot be obtained from a bank.So what the company can do is that they can issue bonds to the public and people can buy those bonds at predetermined rates. The organization that issues a bond is called a issuer and the person who invests money is called an investor.The advantage of getting a bond is that its similar to a loan issued to the institution. The institution in turn has to pay the investor some predetermined interest. This concept is slower especially when the market goes up and down and there is large scope of improvement when there is higher profit on investments in shares. There is a disadvantage too – If the company goes on loss or bankruptcy then there is no guarantee that a investor would get back his money. So when you are investing in stock/bonds make a smart decision before investment.
Posted by Angela on Thursday, July 15, 2010
Every man is different and every person has his own dream of becoming something in life. But it’s not easy that everyone accomplishes on what they plan. The first step involved in achieving ones goal is to set a framework and aspiring to achieve it any manner. There is many a times when we do not achieve whatever we plan. There might be reasons why one quits his efforts towards the goal and continues with his normal life. But then one who again comes back to achieve this goal is called the brave one. Most people lose interest half way through. This is the common mistake done by most of the individuals. If we manage to stay focused then even the impossible becomes easy to reach. Let's demonstrate a small exercise – close your eyes and think of the accomplishments you have made in your life. Compare the hard work put in achieving the accomplished and to be accomplished. You will know the difference and would automatically start correcting yourself. Quitting is easy but pursuing your goal is the art we all need to learn.