Current Market Volatility - Investor's View

I took some time out of my slightly tight schedule two days ago, to find out about share markets and trading in general. And the irony was that the person who was to give me all this wisdom(read knowledge) is the same guy who sits just in front of my machine(same cubicle) and is supposedly my team senior in my latest project. Now if you are unable to understand the use of ‘irony’ in my last sentence, then to make it a bit more clear, that is because my slightly tight schedule is due to this recent project only.

So it happened as if this guy (same cubicle) sees me logged on to ‘icicidirect’ website and enquires about whether I do trading. I very confidently snapped back with a yes, it was then when he mentioned about the term ‘margin trading’. This was an entirely new term and concept for me but as things turn out, I get hooked into listening him about the whole concept of margin trading. Now I have been trading for last 2-3 months only, and I have been just accumulating stocks at a low rate(nothing like low rate exists hypothetically) and looking them to sell at high prices. So when I came to terms with the concept of margin trading, it actually lust for it, it was an easy short cut for easy money I felt. Today was my 2^nd day doing margin trading and I’ve realized two things in just two days.

1. There is nothing like easy money in this world at least.
2. You should never put all your eggs in one basket.

Now for those who don’t understand the concept of Margin Trading(Intra-day trading), lets brief you about that first.

Look in simple layman’s language; it is as simple as buying stocks almost 4 times the money you actually possess. Let’s take an e.g. Suppose I have Rs 10,000 in my trading a/c. then I can buy shares worth say Rs 40,000. Now the idea is this no money is deducted from my a/c at that moment. It allocates you say 1000 shares of Rs 40 each. Now during the whole day before 3:15 p.m. it is upto me when do I sell them. If I see the stock value rise to say Rs 43 I can sell them right away, for Rs 43000, thus making a profit of Rs 3000 minus some brokerage amount. But it is not smooth sailing always, suppose the stock value don’t rise above Rs 40, and decreases to say Rs 37, I’ll have to wait till it gets back to above Rs 40. But this wait is only till 3:15 p.m. else the system automatically sells the stock by that time, irrespective of the value. So one has to be prepared to face losses too. In other words, this is very similar to legalized gambling.

Also there is a concept of ‘short sell’ which is just the reverse procedure of the above procedure. In this one has to sell the shares(expected to go down during the day) first and when market goes down, and when the stock value falls, one has to buy the shares, thus raking in profits. But there is a similar risk attached here too, that if by 3:15 p.m. the prices of the share don’t decrease, one would have to buy them on high rates, thus losing the money plus brokerage amount.

Now lets come to my case, I being very excited by the thought of this concept(read scheme) invested for the 1^st time yesterday. Looking at the market trends nowadays I was very sure of increase in stock prices on Wednesday. So looking at the situation when market opened to a low of 150 points, I was very sure of increase in the value of one particular stock Reliance Communication. So I bought about 100 shares for some Rs. 40,800. I was very sure of its prices going up, and it even rose a little for a while, but I was planning to gain heavy profits, thus ignoring the advice of my team mate from my project, yes the same one who enlightened me about this whole idea, and waited on, to realize soon that it was going to be an another bleak day for market, and I would be losing about Rs 1000 in the 1^st day itself. But to my relief market showed some exceptional bounce during the end of day and at last I was relieved when I reported a loss of only Rs. 200. So this was my 1^st day of margin trading.

Now today morning I was pretty sure that yesterday was an off day, and today I would be booking profits surely. To my happiness I saw that markets opened to a SENSEX high of almost 500 points and Nifty high by 100 points. I made my decision, totally on my gut feeling and some common sense, that today market has opened this high, it would surely fall by the end of the day. So it’s the best situation for short-selling i.e. selling some stock with high quote now and wait for day end for the stock to crash. Then again came some words of wisdom from my team mate(read cubicle mate), trying to deter me from my path to success and glory. But I was very sure of myself, so I sold away 100 shares of DLF Limited for Rs. 410 each, and that seemed to me a very high price for it since it was the most it has reached this week. Now I was very sure to book profits today, but to my slight disappointment it prices went till 412 and then kept hovering around 415 mark. I was still not perturbed a bit, as I was almost sure that markets would come down, to my relief it even came down, but DLF Limited remained hovering around 415-417. I didn’t understand any logic. It was about 3:00 p.m. when I actually started worrying when the price was still not down; in fact it was now about Rs. 420, a loss of almost Rs 1000. But still I thought that may be like yesterday something may happen today also, and the price would come till Rs 412-414, so that my losses would be about Rs 200-400 only. But then while clicking on the refresh button repeatedly; I got the greatest shock in 2 days, the price of DLF ltd shot to Rs 425, the next moment I decided to buying it as it was not worth waiting more, and I bought back 100 shares, but to my grief it was at Rs 427 per share. And yes the loss was Rs 1700 plus the brokerage amount for the day, which made it almost Rs 1800 for the day, and Rs 2000 for my first two days in margin trading. I thought that this was the last time I have indulged in this, not again, but there was more to follow. I decided to check on that had I waited for 3:15 p.m. could I have saved more?

The answer was :

NO !!

The price of DLF ltd had gone to Rs. 435 by that time and I would have lost more of Rs 800. I was relieved to know my quick decision making of buying 100 shared for Rs 427 had worked. I am good with stocks !! I said to myself, and smiled.

Let us hope tomorrow is a new day, and finally my days become bright, and I still have a gut feeling that I am going to recover all losses tomorrow.

And yes I know my team mate(read cubicle mate) is going to stop me tomorrow also, rather say warn me, but I know me !!!