Mr prabakar
I wish to give u a diffrent prespective to leveraged positions,
On 13th March 2009 when the current uptrend started from 2670
If you had purchased a Mini Nifty Future The margin paid would have been 6400 for a exposure of 53400
And similarly if you had purchased 6 top stocks for the same price of the Mini Nifty
| Name | Nos | Price | |
| Bharati | 15 | 560 | 8400 |
| bhel | 7 | 1370 | 9590 |
| IDFC | 180 | 48 | 8640 |
| Larsen | 15 | 605 | 9075 |
| Reliance | 7 | 1250 | 8750 |
| SBI | 7 | 1250 | 8750 |
| | | | 53205 |
Now risk of nifty going to zero is the same as all the above stocks going to zero
If nifty had gone to zero you lose 53400 , same risk as the stocks going to zero
Now in the 2 months period the nifty went to 3700 giving a 20600 or a return of 38.5%
In the same period the return on the 6 stocks are as follows
| Name | Nos | Price in March | Price in May | Profits |
| Bharati | 15 | 560 | 800 | 3600 |
| bhel | 7 | 1370 | 1690 | 2240 |
| IDFC | 180 | 48 | 90 | 7560 |
| Larsen | 15 | 605 | 976 | 5565 |
| Reliance | 7 | 1250 | 1935 | 4795 |
| SBI | 7 | 1250 | 1260 | 70 |
| | | | | 23830 |
Thus giving a return of 44%. Not a big difference?
But then the amt invested is just the margin .. that is 6400. On this the return works out to 321 %. Stupendous!!
Now consider another scenario wherein the market did not go up, instead it went down to 2200. Nifty loss would be 9400. That means your initial margin wiped out.. plus you pay another 3000 from your pocket.
In that case the stocks would also have gone down by similar %age and notional loss would be 9400.
Now nifty goes down to 1500 as was being predicated by many, and I also hoped that it would,, The loss in nifty would be 23700 that means 17000 gone from you pocket
And so on. Till nifty goes down to zero where in you end up paying 53400.. But remember!! Your holdings will also be zero.
So you would lose similar amount of 53400 in the stocks also… (Considered to be safe!!!)
I feel the problem comes when you don't have the deep pockets to pay for the un realized losses… then you have to square off
Kumar
To: sharetrading@
From: sunil_rola@yahoo.
Date: Thu, 28 Jan 2010 23:36:21 +0530
Subject: Re: [sharetrading] A.K.Prabhakar`
From: sharetrading.
To: sharetrading@
Sent: Thu, 28 January, 2010 11:33:40 AM
Subject: [sharetrading] A.K.Prabhakar`
Investors should understand that correction is a part of market and it has to happen
Instead of buying in euphoria always buy when everyone is a seller
In market we can never judge the low & high of the index or stock perfectly but systematic investment makes a big difference.
Buy in small quantity on a regular basis and only in cash.
Only in cash
Many don't understand importance of this
90% of leveraged traders lose money to 10% of the brilliant traders
If you notice people doing derivatives( F&O or Futures) make fast money to lose it even faster in the slightest mistake or wrong trade. Why lose good (Hard earned) money on a trade?
Always avoid F&O/Margin Funding and other leveraged trades if you want to make real money in this market.
A.K.Prabhakar
Equity Analyst
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