WHAT IS EQUITY?

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.

WHY INVEST IN EQUITY?

Despite the risk involved, investment in equities is known to offer investors high returns in the long run. Equities investment not only helps an individual in wealth creation over time, but also builds the nation’s capital in the process.

For the investor, equity offers numerous benefits such as:

• Entitlement to 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 through value enhancement: A shareholder can also make profits by selling the shares on the stock exchange at a price higher than the purchase price.

• High Returns: 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.

• Tax Benefits: Investment in equities offers several tax benefits. For example, under the recently introduced Rajiv Gandhi Equity Savings Scheme, investment upto Rs. 50000/- in the equity of listed companies is tax deductible. Also, the dividend received by an investor through equity shares is exempt in the hands of the investor.

WHY INVEST IN EQUITY?

Commodities Trading involves trading in every kind of movable property other than actionable claims, money and securities. These include gold, silver and other metals and select agricultural commodities such as grains, pulses, spices, oils and oilseeds. It usually involves trading of commodities futures contracts.

WHY TRADE IN COMMODITIES?

Commodities prices are relatively less affected by factors influencing the stock markets, and hence, offer an excellent avenue of portfolio diversification for investors. Along with diversification and predictability, an investor can also take advantage of the leverage and the liquidity that the market offers

Commodities' trading offers the following benefits:-

• Diversification of portfolio: Commodity trading offers a means for diversification of portfolio for the investors, by offering exposure to an asset class different from stock markets instruments such as equities, mutual funds and bonds.

• Predictability : Commodities pricing is largely based on the demand and supply fundamentals for the commodity, and hence, becomes relatively easier to predict.

• Leverage : Trading in commodities futures involves use of leverage through margin which is maintained with the broker. Hence, large transactions can be executed with lesser amount of cash in hand.

• Liquidity : Futures contracts in commonly traded commodities such as gold, silver, crude oil and grains offer a high level of liquidity in the market.

WHAT IS CURRENCY TRADING?

Currency trading refers to the exchange of currencies, where the difference in the currency value is used to make profits. It is a huge market, with traded value being higher than equities. A few years ago, currency trading was restricted to large banks and corporations. Now, advancement in technology has equipped retail investors with easy access to currency trading and even individual investors consider it to be an attractive avenue for investment.

WHY TRADE IN CURRENCIES?

Currency market has a huge level of liquidity and is open for 24 hours per day. It is relatively resilient to factors affecting stock markets and hence, can act as an effective means to expand one’s portfolio. However, currency trading is risky in nature, and requires careful planning and thorough risk-benefit analysis.

• High Liquidity: Owing to the large amount of trades conducted per day, the currency markets offer high level of liquidity. Hence, one can enter and exit the market with relative ease

• Lower costs: Owing to low level of spreads, lesser brokerage is involved in the transactions, which reduces the cost for the trader.

• Leverage: Trading in currencies futures involves use of leverage through margin which is maintained with the broker. Hence, large transactions can be executed with lesser amount of cash in hand.

• Round-the-clock trading: The currency market is open 24 hours a day, and thus, offers the convenience to transact any time of the day.

WHAT ARE DERIVATIVES?

A derivative is an instrument which derives its value from the underlying asset. The asset can be equity, a commodity, a currency or even an index. Derivatives are usually in the form of a contract, where the buyer is under an obligation to buy or seller is under an obligation to sell the underlying asset at a specified price on a specified date in the future

WHY INVEST IN DERIVATIVES?

Derivatives have traditionally been used by businesses to hedge against different types of risks, and have been in existence for decades. With well-planned strategies based on a thorough study of the markets, individual investors and traders can earn handsome returns through derivatives trading.

Investment in derivatives has the following advantages:-

• Hedging against risk: Derivatives are used for hedging against risk in price fluctuations of the underlying asset. Since the buy (or sell) price at delivery is specified in advance, the buyer/seller can protect his investment from deviation in price trend.

• Lower costs: The investor needs to pay only for the contract, which is usually much less than the price of the underlying asset, thus offering a benefit of lower costs.

• Leverage: Trading in derivatives involves use of leverage through margin that is maintained with the broker. Hence, lesser cash is required to be paid at the time of trade

HOW TO INVEST IN DERIVATIVES?

Derivatives are generally short-term trading instruments, and are traded on the exchanges. Similar to stocks, to buy or sell derivatives on the exchange, you need to place orders with your broker, who then executes the order on your behalf.