Equity Trading in Cash &Derivative
What Equity stands for:
The equity is evaluated by the difference between liabilities and assets recorded
on the balance sheet of a company. Equity represents ownership in a company acquired
through contribution of capital, which is required to set up or run a business.
This capital is raised through issue of shares to the public or a group of private
persons, where each share represents a proportion of the stake on the assets and
profits of the company. These shares are either bought directly from the company
through an offer, or traded (bought and sold) on the stock exchanges. The worthiness
of equity is based on the present share price or a value regulated by the valuation
professionals or investors.
What are the benefits of investing in Equity?
Equity offers the highest returns and is the reason why many investors put their
money in them. There are many other benefits that equity offers and we’ve listed
them below:
Growth of capital - Equities are one of the best financial instruments that
can offer returns to help investors beat inflation. If the prices of stocks increase,
investors will be able to see it as an appreciation in their capital. A substantial
amount of wealth can be accumulated by investors over the long-term through investments
in equity. Even though equity is a risky asset, returns on investments in equity
are known to beat inflation in the long-term, and thus help in wealth creation.
Diversification of portfolio - When investors invest in equity, they get
exposure to various stocks. So, even if some stocks in the portfolio are not performing
well, the investor will still achieve capital gains from the performance of other
stocks. In this way, equity helps investors in the diversification of their portfolios.
Professionally managed by proper Analysis - Equity investment can be managed
professionally by experts who study the market, analyze the performance of companies,
and then invest in the best performing stocks so as to deliver optimal returns to
the investor.
Easy to liquidate - Equity investment can be liquidated at any time offering
liquidity to the investor. Equity also let investors buy more shares at lower price
when there is a fall in the market.
Realization of company’s profits - The holder of a company’s equity or shares
is entitled to a share of profit in the company. This share of profit is received
through dividends.
Profit by Valuation Gain - A shareholder can also make profits by selling
the shares on the stock exchange at a price higher than the purchase price.
Tax Benefits - Investment in equities offers several tax benefits. For example,
Long Term Capital Gain from Equity is exempt from taxation. Also, the dividend received
by an investor through equity shares is exempt in the hands of the investor.
Derivative:
Derivatives are financial contracts that derive their value from an underlying asset.
These could be stocks, indices, commodities, currencies, exchange rates, or the
rate of interest. These financial instruments help you make profits by betting on
the future value of the underlying asset. So, their value is derived from that of
the underlying asset. This is why they are called ‘Derivatives’. The derivatives
trading segment is a highly lucrative market that allows investors to earn superlative
profits (or losses) by paying a nominal amount of margin. Over the past few years,
the Future & Options segment has emerged as a popular medium for trading in financial
markets. Future contracts are available on Equities, Indices, Currency and Commodities.
Financial derivatives do away with the need to invest a large amount of capital
upfront and allow you to benefit from market movements. This gives you greater liquidity
than most other assets.
Derivatives are also very efficient risk management instruments offering benefits
such as:
- Allows you to get higher trading exposure with a low margin amount
- Allows you to safeguard yourself against potential losses, by hedging your positions.
As a part of this, you buy in the cash segment and agree to sell in the derivatives
market or vice versa
- Allows you to choose between conservative or high-risk strategies based on the expected
rise and fall of stock prices
- Possib ility to yield good returns irrespective of market moving up, down or sideways
Its membership as a Trading Member of NSE and BSE in Derivatives
Segment provides you with an exposure to the derivatives market.