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Capital in Trading

Definition of Capital in Trading

Capital is the total amount of money that a trader can use to buy and sell securities. There are variations of the term, the most common one is “starting capital”. This is the amount of money a trader starts their journey with.

Related Terms

Industry Analysis

Industry Analysis is a method of understanding the level of competition, potential profit/loss, supply and demand cycle, & other crucial factors within an industry.

Index Futures

Index futures are derivative instruments that track an underlying sectoral, thematic, or benchmark index like Nifty Bank, Finnifty, Nifty 50, and others. While trading index futures, a trader avoids individual share risk by trading an entire index.

Bounce Trading

Bounce trading refers to buying a position in security when its price falls to a particular support level with the anticipation that it will “bounce” back to a certain price level. Technical analysis is the bedrock of bounce trading but various patterns and strategies can be used to achieve the desired goal.

Bonds

Bonds are fixed income securities issued in exchange for a loan, generally by governments and corporations. A bond will generate a fixed interest rate on top of the principal across a fixed time period. A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.

The quality of a bond can be understood by its credit rating, which is nothing but the creditworthiness of the company issuing it. The best bonds in India are known to have the following credit rating:

  • SOV: Only for government bonds
  • AAA: Highest
  • AA+: High-medium
  • A+: Upper-medium
  • BBB+: Lower-medium
  • BB+: Speculative
  • B+: Highlight speculative
  • CCC+: Risky
  • CC: Extremely risky

Convertible Bonds

A convertible bond is a hybrid security that’s initially designed to be a debt instrument that pays a fixed interest rate in exchange for a loan. Once the loan’s tenure ends, the holder can decide to take one of either action:

  • Don’t convert bond: face value of the bond is transferred to the holder on maturity
  • CANSLIM

    CANSLIM is an acronym for a seven-step strategy to pick growth stocks by combining fundamental and technical analysis. Here’s the full form of CANSLIM:

    • Current quarterly Earnings Per Share (EPS): compare this fundamental indicator with the same figure from the previous quarter. If the figure grows (by 20% or more as a rule of thumb), the company is fundamentally strong.

    • Annual earnings: Compare this fundamental indicator from the previous years. If there’s year-on-year growth, the company is fundamentally strong. If the year-on-year growth is by 20-25%, even better.

    • New product or service: strong companies continue to innovate. That’s what this letter is about - checking if the company is continuously launching new products, services, or holding events.

    • Supply: a fundamentally strong business should have a good supply and demand when it comes to its goods, services, and stock. Executive supply of shares may reduce the value of the company - that’s why it should always be scarce in supply.

    • Leader: the company should be a leader in its own right, either in or across industries.

    • Institutional holding: a valuable company will have higher institutional ownership, the percentage of which should always be tracked.

    • Market trend: an investor must check whether the company or stock is going or against the trend by comparing it to broader indices.




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