Absolute Beginner Guide.

Originally Posted by gsalvadi

Authorized Capital is the maximum amount of capital the company is allowed to hold. Authorized capital is the maximum number of shares that company can issue to pump funds.
There is a close relation between the face value of the share (when first issued) to the authorized capital of the company.

Authorized capital is defined in a class of MOA. Authorized capital need be the capital the company may need in future for business operations. It is just the capital the company can have at any point of time. Likewise at any point of time, a company may give amendments to authorized capital class of MOA by registering same with ROC. (I hope I can use "MOA" and "ROC". Kindly check previous posts to know what they mean)

If a company has 100 lakhs as authorized capital, till it could issue shares only for 50 lakhs.
Remaining shares could be issued by the company at any point of time later. At no point the capital could not exceed 100 lakhs unless there is an amenIn dment registered.

In this case 100 lakhs is authorized capital and 50 lakhs is issued captial

Dividend

Dividend is the portion of profit every share deserves. If a company makes a profit, then the profit would be distributed among shares issued. Each share get its portion of profit, "dividend"

Types of shares

Ordinary Shares : These is most risky shares as they do not have any special privileges or restrictions. If a company is winding up, these are the shares which are suppose to be settled at last.

Preference Shares These shares have special privileges like getting dividends well before ordinary shares and restrictions like there will be restrictions on dividend if the company makes great profits.

Redeemable Shares These shares are of the type the company could buy back from share holder at any time fixed by the company.

These basic types are enough.

So, the company generate funds for its business by means of shares, the shares are issued to people.

Originally Posted by haribird

Here I will guide you about the setups needed fort day trading.

First off all you need to arrange all the inventories before starting day trading. I will describe below what you need to do first. All are inconsideration that you want to be a dedicated online trader and need to have a fool proof trading system. This setup will keep you in trading as far as you want.

1. Open a Bank Account, Demat Account & Online Trading Account. You can contact a broker firm to get these accounts opened.
Brokerage firms: Sharekhan, Geojit, Religare, Reliance Money, HDFC, ICICIDirect, etc.

Funds from your bank will be transferred to the trading account. Then shares can be brought using that money. The shares you brought will be held on your demat account.
While buying a share: Bank account -> (cash) Trading Account -> (shares) Demat Account
While selling a share: Demat Account (shares) -> Trading Account (cash) -> Bank Account

The above transactions attracts certain commissions, known as brokerages. Since, above the value of shares you will be charged some small amount of money as brokerages. Also you will be charged some taxes for these transactions and for the gain.

Brokerage: For the whole buy and sell value,
STT(Security Transaction Tax): Calculated on the Weighted Average Price of the client for a particular days turnover,
Stamp Duty,
Service Tax,
etc.
This doesn't include income tax. You need to pay a particular % of income tax for all your Gains only, Also you can deduct your losses from the Gains for the calculation of income tax.

I will post a real life example of a transaction.

Share: UNITECH LTD
No of Shares brought: 200
Buy Price: 147.85
Total Amount: Rs: 29570
Brokerage: Rs: 15
Service Tax: Rs:1.86
NET COST OF BUY: Rs: 29586.86

Now you have a Trading Account ready to buy and sell shares.
For day traders the shares are brought and sold in the same day itself.
So these shares will not actually go to your demat account.

Now we can discuss about other client setups.
Consider you are a dedicated trader who trades from your home or office, you need to have the below hardwares and softwares.

1. Sufficient Trading Capital (Money).
3. A good Computer System.
4. A Power Back Up System.
5. A good Trading Terminal Software.
6. A very good Internet Connection.
7. A calm environment where other will not disturb you.

Sufficient Trading Capital
You should have sufficient fund for trading. Broker firms allow you to trade more than the money you have for non-delivery trading(day trading) or for 6 days trading with some brokers like Sharekhan. This is known as leverage, its good you can buy more for less money but, say for example if you have Rs:1000 the broker firm may allow you to trade for 4000 and for even 10000 with some brokers. But high leveraged trading is extremely dangerous and it will kill your trading capital. So try to be less leverage as possible.

See the danger of leveraged trading by an example,
One have taken the leverage of 10 times his trading capital of 1000 and brought shares worth 10000.
Brought ABC 100 share for Rs:100
After 15 minutes the share price is not moving up but going down. So he decided to sell the shares at the current price to limit the losses.
He sold at: Rs:90, means he lost Rs:10 per share.
So, Total loss = 10*100 = 1000. Now Rs: 1000 will be deducted from his trading account. Now his trading capital is 0, means he cannot trade since there is no money left.

His Capital: 1000
Brought in leverage: 10000
Lost 1000
Now his Capital: 0
Like wise if you have gained and booked profit at 110 you will gain 1000. Means you have made 1000 from 1000 from a single trade. But a single loss will kill a greater percentage of your capital and you will get pain to even recover from the loss.

I know I have detailed roughly about leverage. But consider, many traders left trading just because they traded with highly leveraged money. So my advice is to not leverage or leverage very less but never leverage more than 4 times(4000 from 1000). As a thumb rule don't loose more than 1% to 2% of your money in any single trade and not more than 10% at any time.

Computer System
These days all computers are highly powered so there is no need to discuss much but, for a dedicated online trader I recommend the following computer setups.
Processor: Dual Core min. 3.2 Ghz(1.6*2)
RAM: 1 GB or more if you are using Windows XP or higher versions.
Monitor: Preferably 2 monitors. 15inch minimum. One for Charts/Graphs and the other for orders and Index tracking.
Browsers: Internet Explorer + Opera or FireFox

Power Back Up System
You must have a power back up system over your conventional 20 minute UPS. Buy a UPS which gives atleast 1 hour back up or buy some other kind of backup system. Even if the power fails you must be able to trade for the next 1 hour atleast even if you have no power cuts in your area.

Trading Terminal Software
As a day trader you should have a trading terminal rather than brokers webpage trading. For this you can signup for brokers providing software terminals to trade. Below are some brokers who provides softwares.

Sharekhan: Provides Software(with technical analysis tools).
ICICIDirect: Donot provides software (So, not suitable for day traders).
Religare: Provides Software.

[Optional]
If you can buy technical analysis softwares (like MetaStock, Amibroker, etc) will be a good idea. Also you need to buy good real time data feeds inorder to see charts and prices in MetaStock, Amibroker,etc. Softwares provided by brokers doesn't need additional data feeds. The advantage of these Technical Analysis softwares over broker's trading terminal softwares are the higher ability to do technical analysis.

Internet Connection
A proper internet connection is a must for every trader. A 250Kbps internet connection will smooth out your trading. Also take a backup connection from a different company inorder to continue trading when the other connection fails of any reason.
Backup Connection is not expensive if you take a usb data card wireless connection or mobile edge internet connection. All these are available for as low as 400 per month or even less. You may also activate the backup connection from your mobile service provider and can use your mobile as modem to access internet through GPRS or EDGE. All mobile service providers have this facility for less than 250 per month. This will save you from a sudden internet blackout.


I wrote these all in a jiffy manner, so please correct if I have missed something or did anything wrong. Will update and add more advanced topics regarding day trading soon. But I need your feedback, questions, complaints, etc to keep me in track.

Thank you,
Hari.

Originally Posted by srinmm

i am new to trading i lose my money in intra day how i select intraday stocks. pl help me i am house wife

Originally Posted by bvsmohan

Hi gsalvadi,

Your article is very great and very helpful for beginners,
i gone thru all ur posts regarding this topic and found clearly described

i have a question regarding this topic,

As u said, in the company, when started, A. B and C alloted shares and when the company wants more capital its going public, my question is

1) At the starting of the company do all the members alloted with entire 100% shares of company or a part of 100% shares.

2) When going public, how the share price, no of shares to issue are calculated

3) When going public, how the already alloted shares of the directors/shareholders valued

your response will be most appreciated

thanks

Originally Posted by bvsmohan

1) At the starting of the company do all the members alloted with entire 100% shares of company or a part of 100% shares.

Originally Posted by bvsmohan

2) When going public, how the share price, no of shares to issue are calculated

Originally Posted by bvsmohan

3) When going public, how the already alloted shares of the directors/shareholders valued

Originally Posted by gsalvadi

Need not allotted 100% and mostly not.





By Capital.



There is no specific change in value for the reason going public.