Following information is sourced from Rediff Money article: http://www.rediff.com/money/2008/dec/29what-everyone-must-know-about-cibil.htm
Currently banks, financial institutions, state financial corporations, non-banking financial companies, housing finance companies and credit card companies are members of CIBIL.
The idea behind setting up CIBIL is to gather all existing consumer and commercial credit information and pool it in a one-point source, for reference.
As in, an individual or commercial establishment could have accounts in several banks and credit from different lending institutions. All such data can be pulled out at one single point, for a quick reference check on the individual or commercial establishment seeking a loan.
This helps the lender, be aware of the repayment track record of the loan seeker and quickly decide on loan eligibility. According to the nature of the track record, a borrower is given a credit score. A poor credit score will make getting a loan, a difficult proposition for the borrower.
CIBIL acts as weeding mechanism that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that the bank is able to recover a considerable sum of money even if a default happens some time into the loan tenure.
On the other hand, if you have an impeccable repayment track record, you can reap benefits from it! Banks provide a lower interest rate for sound credit profiles that have excellent credit scores and such 'Credit Information Reports' can work to your advantage.
It also helps lenders and banks quickly process a loan, without wasting valuable time on research and background check on the loan applicant.
Well, this is the brighter side of things. There is a flip side to this, too. As with all mass processing systems that are not dependent on a single source for information, there are quite a few things that could be incorrectly recorded in the credit information reports, which are stored with CIBIL.
Here are a few instances, detailed for your understanding:
Lack of updated info: You might have defaulted on a sum of money, say Rs 12,000 but repaid the sum later, maybe well past the due date for the payment. There could be instances where CIBIL did not get the updated info for its records. This will show up as a default and will affect the calculation of a good credit score.
Confusion of names: There can be thousands of names that are similar in the CIBIL database. Things can go haywire if a person who shares your name has defaulted and all his defaults get recorded in your file.
There was this one instance, which a loan applicant reported. Her name, Anju Jadeja, was confused with Anjum Taneja. Turns out Anjum Taneja passed away tragically in a freak accident, with nobody able to identify her until bank authorities decided to investigate the applicant after CIBIL corrected and ratified Anju Jadeja's credit report.
Till that point in time, the bank had put down Anjum's bouncing cheques, as defaults on loan payments in Anju's credit report. Today, Anju is a relieved woman.
Human input error: The information that goes from the banks to CIBIL on a loan or credit card payment default may have been erroneous due to a simple input error by one of the bank employees.
There was this instance when there was an accidental default of a month overdue payment of Rs 18,000 of one Tanushree Omkar. She cleared it the next month. However, the record that went to CIBI, had two additional zeroes, which made the default amount to Rs 18 lakh (Rs 1.8 million)!
Identity theft: This is the most serious of all causes of errors and can have a disastrous impact on a person's credit profile.
In recent times, identity thefts are on the rise. Right from a petty shopkeeper who swipes your card several times to sneak in an unofficial payment, to a terrorist who wants to access a billionaire's account in a remote corner of the world, identity theft is becoming a serious crime that needs to be checked.
If you are a victim of identity theft, like Anupam Shekar was, then it is time to get your financial log in order. Keep track of all the cards that you use or do not use. In Anupam's case, an impostor had captured his PAN card details using a clever ploy. Anupam recalled that someone had wanted to deliver a mail from his local bank only on the basis of identification and had been examining the PAN card given with great curiosity.
It was then that it struck him that anyone could access his mailbox in the huge apartment complex he resided in. The impostor then went on to open an account with a bank entering all the details he had gathered on Anupam by accessing his mailbox. Anupam did not know for a long time about this until he decided to apply for a new credit card and his bank rejected him outright, labelling him a defaulter. Anupam had to go to great lengths, spending precious time and energy, to clear his name.
Apparently, the impostor had directed all bank communication to another address, got a credit card on that account and spent indiscriminately until the card was locked by the bank due to several defaults on repayment.
The account was frozen but the impostor walked away scot free to scout for his next victim, but not before Anupam Shekar's credit report was tarnished beyond repair.
Fixing an incorrect CIBIL record
If you need to seek clarifications in your credit report, here are the steps you should follow:
a. Contact the bank that declined a credit card or loan application on the basis of your poor credit score. Ask them for a clarification on the poor credit score and request them to provide the control number for your credit report.
b. The bank will provide you with the control number of the credit report and also share the information on the credit report that is responsible for your poor credit score.
Get in touch with CIBIL by calling their help desk numbers at 1800 - 224 / 245 or +91 22 6638 4600 / 2281 7788 provided on their Web site, http://www.cibil.com/.
You could also drop in an email at info@cibil.com referring your credit report's control number. When attempting to clarify the information on your credit report, you need to inform CIBIL about the exact nature of the discrepancies in the report that you have been made aware of, by the bank.
The importance of the control number
The control number is a nine-digit unique number that helps CIBIL track an individual's credit t report from its database.
Banks feed in borrower data and personal information, which the CIBIL systems pool together. The control number is generated when banks pull out your credit report on a requirement basis.
The control number is generated every time any bank or credit institution pulls out a credit report on you. CIBIL requires this number because it enables them to view the exact details that the bank has seen when they drew a report on you. Hence, it is important for you to request the bank to provide you the control number.
Dealing with an uncooperative bank
When the bank is uncooperative you could post a complaint on the bank's Web site and if the bank does not respond within 15 days, you can register a complaint with the banking Ombudsman, presenting a copy of the complaint posted on the bank's Web site as proof.
You can either register this complaint through their Web site, http://www.bankingombudsman.rbi.org.in/ or locate the nearest branch office through this link, http://rbidocs.rbi.org.in/rdocs/Content/PDFs/68033.pdf to register your complaint.
Need for direct access to credit reports for borrowers
It is the need of the hour for CIBIL to allow borrowers to access their respective credit reports not only on cases when the information needs to be verified but also as a way for individuals to keep a tab on their money inflow and outflow.
Tuesday, January 6, 2009
Tuesday, December 16, 2008
Market Dynamics: is it the right time to buy
This information has been sourced from economictimes article,
http://economictimes.indiatimes.com/Markets/Analysis/Equity_-_Is_It_The_Right_Time_to_buy/articleshow/msid-3845314,curpg-2.cms
There are several metrics which can be observed to get a fair guesstimate about the direction market is heading towards. They are:
Earnings Approach
The current level of Sensex implies 10.0 x – 9.4 x P/E of FY09 earnings and probably around 12.5x – 11.3x of FY10 earnings.
Historically, since 1991, Sensex has traded in the range of 10-30 times one year forward earnings. So, currently the Sensex is certainly at the lower range of the historical P/E band.
Even if things are likely to be different this time due to a worldwide recession, we do not expect more than 20% downside from these levels.
Book Value Approach
The current P/BV (Price to Book Value) of Sensex is hovering around 2.3 which is in the range of historic lows of 2-2.4.
In last 18 years, whenever the P/BV ratio had drifted to around 2, it has been followed by a smart pull back. For example, in November 1998 when Sensex fell to around 2800 levels (P/BV of 2), the next six months witnessed a strong pullback rally of more than 40% pushing the index to 4000 levels.
Conversely during last 15 years, markets have fallen sharply every time the P/BV ratio has crossed 6.5. January 2008 was no exception to this rule.
Falling Yield in Equity
Historically, it has been observed that whenever Equity yield has crossed the G-Sec yield, it makes sense to invest in equities.
On the other hand, whenever G-Sec yield has reached higher than equity by 4% or more, it has been a good opportunity to sell out of equities.
In January 2008, the G-Sec yield was higher than equity by this threshold margin. Since this indicator was very accurate in predicting the peak of the bull market, it may be used as a good sign to determine the trough of this bear market. Since Equity yield has already crossed the G-Sec yield, we may conclude that we are near the bottom of the cycle as far as equity markets are concerned.
http://economictimes.indiatimes.com/Markets/Analysis/Equity_-_Is_It_The_Right_Time_to_buy/articleshow/msid-3845314,curpg-2.cms
There are several metrics which can be observed to get a fair guesstimate about the direction market is heading towards. They are:
Earnings Approach
The current level of Sensex implies 10.0 x – 9.4 x P/E of FY09 earnings and probably around 12.5x – 11.3x of FY10 earnings.
Historically, since 1991, Sensex has traded in the range of 10-30 times one year forward earnings. So, currently the Sensex is certainly at the lower range of the historical P/E band.
Even if things are likely to be different this time due to a worldwide recession, we do not expect more than 20% downside from these levels.
Book Value Approach
The current P/BV (Price to Book Value) of Sensex is hovering around 2.3 which is in the range of historic lows of 2-2.4.
In last 18 years, whenever the P/BV ratio had drifted to around 2, it has been followed by a smart pull back. For example, in November 1998 when Sensex fell to around 2800 levels (P/BV of 2), the next six months witnessed a strong pullback rally of more than 40% pushing the index to 4000 levels.
Conversely during last 15 years, markets have fallen sharply every time the P/BV ratio has crossed 6.5. January 2008 was no exception to this rule.
Falling Yield in Equity
Historically, it has been observed that whenever Equity yield has crossed the G-Sec yield, it makes sense to invest in equities.
On the other hand, whenever G-Sec yield has reached higher than equity by 4% or more, it has been a good opportunity to sell out of equities.
In January 2008, the G-Sec yield was higher than equity by this threshold margin. Since this indicator was very accurate in predicting the peak of the bull market, it may be used as a good sign to determine the trough of this bear market. Since Equity yield has already crossed the G-Sec yield, we may conclude that we are near the bottom of the cycle as far as equity markets are concerned.
Thursday, December 4, 2008
Average Quartely Balance -- How is it calculated
To understand how AQB is calculated, here are some useful links:
http://www.hdfcbank.com/personal/accounts/aqb_pop_up.htm
http://www.hdfcbank.com/personal/accounts/aqb_pop_up.htm
Wednesday, November 19, 2008
Futures and Options -- Let us Know
Derivatives are products that obtain their value from a spot price, called the “underlying”.In India, F&Os are the two popular derivatives instruments traded on stock exchange. While in a futures contract, you agree to buy or sell shares at a certain price in the future, the option contract gives you the right, but not an obligation, to buy (through a call option) or sell (through a put option) the underlying scrip at a specified date and at a specified price.To start trading in futures contract, you are required to place a certain percentage of the total contract as margin money.This feature of futures contract makes it a leveraged instrument since you can make a larger profit (or loss) with a comparatively small amount of capital. In India, futures contracts are available on equity stocks, indices, commodities and currency.
In options trading, you pay the premium for buying the rights to exercise your option. To take the buy or sell position on index and stock options, you are required to place a certain percentage of order value as margin money.An option can be a ‘call’ option or a ‘put’ option. A call option gives you a right to buy the asset at a given price or before a given future date. This ‘given price’ is called ‘strike price’.Similarly, a ‘put’ option gives you a right to sell the asset at the ‘strike price’ to the buyer. Thus in an options contract, the right to exercise the option is vested with the buyer and the seller has only the obligation but no rights.Since the writer of an option bears the obligation, he is paid a price known as ‘premium’.
Before venturing into unknown waters, analysts advise that you must fully understand the implications arising out of trade in F&Os. “It is trading on margin with a leverage of four-six times. You should know that in leveraged trading, the market fall is magnified to the extent of the leverage availed by you.Understanding your risk appetite and risk tolerance is important in F&Os trading,” says Sandeep Nayak, senior vice-president and head, private client dealing, Kotak Securities.The golden rule — never trade anything that you don’t understand — believe analysts, has a special significance for F&Os trading since the risk in them, with all the leverage and complexity, comes in multiple dimensions. “Unlike the cash market where your risk is limited to the amount you deploy, you can lose much more than what you’ve put in and in much more ways than a simple price move in the F&Os segment. Always think risk first and then think about returns,” cautions Nilesh Shah, CEO of Ambit Capital.
According to Shah, a first-time investor must not trade in F&Os due to the associated risks. Only after having invested in stocks for over three years, an investor should try to become a trader.“However, you must start with very small ticket sizes initially and only once you’ve gained confidence about the nature and working of these instruments should you look to increase your ticket size.You should try to seek expert advice at least in the initial part of your trading journey,” he feels. Nayak, too, feels that a first-time investor trading in F&Os is akin to an individual trying to swim in the deep end of the pool on day one of swimming class.
According to Shah, a first-time investor must not trade in F&Os due to the associated risks. Only after having invested in stocks for over three years, an investor should try to become a trader.“However, you must start with very small ticket sizes initially and only once you’ve gained confidence about the nature and working of these instruments should you look to increase your ticket size.You should try to seek expert advice at least in the initial part of your trading journey,” he feels. Nayak, too, feels that a first-time investor trading in F&Os is akin to an individual trying to swim in the deep end of the pool on day one of swimming class.
Example: On November 1, an investor feels the market will rise Buys one contract of November ABC Ltd futures at Rs 400 (market lot: 200) November 12 ABC Ltd futures price has increased to Rs 480 Sells off the position at Rs 480. Books a profit of Rs 16,000 (200x80).Options Example: On November 1, an investor is bearish on the market Current Nifty is 2,980. You buy one contract (lot size 50) of Nifty near month puts for Rs 20 each.The strike price is 2,940. The premium paid by you: (20x50) Rs 1,000.Your breakeven Nifty level is 2,920. If at expiration Nifty declines to 2,890, then Put Strike Price 2,940 Nifty expiration level 2,890 Option value 50 (2,940-2 ,890) Less: Purchase price 20 Profit per Nifty 30 Profit on the contract Rs 1,500.
In options trading, you pay the premium for buying the rights to exercise your option. To take the buy or sell position on index and stock options, you are required to place a certain percentage of order value as margin money.An option can be a ‘call’ option or a ‘put’ option. A call option gives you a right to buy the asset at a given price or before a given future date. This ‘given price’ is called ‘strike price’.Similarly, a ‘put’ option gives you a right to sell the asset at the ‘strike price’ to the buyer. Thus in an options contract, the right to exercise the option is vested with the buyer and the seller has only the obligation but no rights.Since the writer of an option bears the obligation, he is paid a price known as ‘premium’.
Before venturing into unknown waters, analysts advise that you must fully understand the implications arising out of trade in F&Os. “It is trading on margin with a leverage of four-six times. You should know that in leveraged trading, the market fall is magnified to the extent of the leverage availed by you.Understanding your risk appetite and risk tolerance is important in F&Os trading,” says Sandeep Nayak, senior vice-president and head, private client dealing, Kotak Securities.The golden rule — never trade anything that you don’t understand — believe analysts, has a special significance for F&Os trading since the risk in them, with all the leverage and complexity, comes in multiple dimensions. “Unlike the cash market where your risk is limited to the amount you deploy, you can lose much more than what you’ve put in and in much more ways than a simple price move in the F&Os segment. Always think risk first and then think about returns,” cautions Nilesh Shah, CEO of Ambit Capital.
According to Shah, a first-time investor must not trade in F&Os due to the associated risks. Only after having invested in stocks for over three years, an investor should try to become a trader.“However, you must start with very small ticket sizes initially and only once you’ve gained confidence about the nature and working of these instruments should you look to increase your ticket size.You should try to seek expert advice at least in the initial part of your trading journey,” he feels. Nayak, too, feels that a first-time investor trading in F&Os is akin to an individual trying to swim in the deep end of the pool on day one of swimming class.
According to Shah, a first-time investor must not trade in F&Os due to the associated risks. Only after having invested in stocks for over three years, an investor should try to become a trader.“However, you must start with very small ticket sizes initially and only once you’ve gained confidence about the nature and working of these instruments should you look to increase your ticket size.You should try to seek expert advice at least in the initial part of your trading journey,” he feels. Nayak, too, feels that a first-time investor trading in F&Os is akin to an individual trying to swim in the deep end of the pool on day one of swimming class.
Example: On November 1, an investor feels the market will rise Buys one contract of November ABC Ltd futures at Rs 400 (market lot: 200) November 12 ABC Ltd futures price has increased to Rs 480 Sells off the position at Rs 480. Books a profit of Rs 16,000 (200x80).Options Example: On November 1, an investor is bearish on the market Current Nifty is 2,980. You buy one contract (lot size 50) of Nifty near month puts for Rs 20 each.The strike price is 2,940. The premium paid by you: (20x50) Rs 1,000.Your breakeven Nifty level is 2,920. If at expiration Nifty declines to 2,890, then Put Strike Price 2,940 Nifty expiration level 2,890 Option value 50 (2,940-2 ,890) Less: Purchase price 20 Profit per Nifty 30 Profit on the contract Rs 1,500.
Datarates provided by your body !!
Everything has the formula. How about the human body? Here is the one for human male penis…
(37.5MB x 100M x 2.25)/5 = (37,500,000 bytes/sperm x 100,000,000 sperm/ml x 2.25 ml) / 5 seconds = 1,687,500,000,000,000 bytes/sec = 1,687.5 TerraBytes/sec
And here is a conversation explaining the calculation I guess :)
1. The human cell contains 75 MB of genetic information 2. A sperm 37.5 MB.
3. In a milliliter, we have 100 million sperms. On average, one ejaculation releases 2.25 ml in 5 seconds.
Using basic math we can compute the bandwidth of the human male penis as:
(37.5MB x 100M x 2.25)/5 = (37,500,000 bytes/sperm x 100,000,000 sperm/ml x 2.25 ml) / 5 seconds = 1,687,500,000,000,000 bytes/sec = 1,687.5 TerraBytes/sec
Sweet
DoS attack!!!
a bukkake would probably be a DDoS then
11 men would give 17 petabytes/secComment:
##programming on FreeNode
(37.5MB x 100M x 2.25)/5 = (37,500,000 bytes/sperm x 100,000,000 sperm/ml x 2.25 ml) / 5 seconds = 1,687,500,000,000,000 bytes/sec = 1,687.5 TerraBytes/sec
And here is a conversation explaining the calculation I guess :)
##programming on FreeNode
How does a bank turn bankrupt
Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.
1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.
2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.
* The net asset of the country now = 3 dollars.
3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.
*A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.
4) A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.
* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.
(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.
* As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
* B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
* C loaned 2 dollars to B, so his net asset is 2 dollars.
* The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.
(6) Everybody has made money and everybody felt happy and prosperous.
(7) One day an evil wind blew, and an evil thought came to C's mind. "Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more."
(8) A also thought the same way.
(9) Nobody wanted to buy land anymore.
* So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
* B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
* C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
* The net asset of the country = 3 dollars again.
(10) So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B's net asset is still 2 dollars, his heart is palpitating.
(11) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.
* A owns the 2 coins, his net asset is 2 dollars.
* B is bankrupt, his net asset is 0 dollar. ( he lost everything )
* C got no choice but end up with a land worth only 1 dollar
* The net asset of the country = 3 dollars.
************ **End of the story; BUT ************ ********* ******
There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting -
(1) When a bubble is building up, the debt of individuals to one another in a country is also building up.
(2) This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.
(3) An over-damped system is assumed when the bubble burst, meaning the land's value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land goes up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology.
1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.
2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.
* The net asset of the country now = 3 dollars.
3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.
*A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.
4) A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.
* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.
(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.
* As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
* B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
* C loaned 2 dollars to B, so his net asset is 2 dollars.
* The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.
(6) Everybody has made money and everybody felt happy and prosperous.
(7) One day an evil wind blew, and an evil thought came to C's mind. "Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more."
(8) A also thought the same way.
(9) Nobody wanted to buy land anymore.
* So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
* B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
* C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
* The net asset of the country = 3 dollars again.
(10) So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B's net asset is still 2 dollars, his heart is palpitating.
(11) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.
* A owns the 2 coins, his net asset is 2 dollars.
* B is bankrupt, his net asset is 0 dollar. ( he lost everything )
* C got no choice but end up with a land worth only 1 dollar
* The net asset of the country = 3 dollars.
************ **End of the story; BUT ************ ********* ******
There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting -
(1) When a bubble is building up, the debt of individuals to one another in a country is also building up.
(2) This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.
(3) An over-damped system is assumed when the bubble burst, meaning the land's value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land goes up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology.
Thursday, November 6, 2008
Stop Loss Trigger ??
I started trading today on the BSE. Here is something I need to know.
Stop Loss Trigger Tool
The Stop Loss Trigger Tool is actually a bit of a misnomer.
This tool is most useful in protecting your profits on an open position. The Stop Loss order is a conditional order to either Buy or Sell.
The condition being that the order is activated only when that stock trades at a specific price defined by you. As is the case in any order, you will have to specify the quantity and the limit price (or market price) at which you want the order to be executed.
And in addition you will have to specify a Trigger Price.
Only if the Exchange records a trade at the price defined as Trigger price by you, will your order will be activated.
In case you choose to use a Limit price (as opposed to market price) for your Stop Loss order, you must remember the following guideline :
Remember even the stop loss tool is valid only for a trading day. If your stop loss order is not triggered during the trading day, it shall lapse automatically at the end of the trading session.
When do you use a Stop loss order?
The Stop Loss order is a great way for a trader to manage his exposure in the market. Lets us say that a trader wants to buy ABC company at Rs100 because he expects the price to rise to Rs120 in a short time. But he does not want to take an unnecessary risk and hence he wants to exit the trade (sell his shares) in ABC company if the price drops below Rs95.
So he first buys 100 shares at Rs100. Then to protect himself against an unexpected movement and limit his losses he would punch in a stop loss sell order for 100 shares of ABC Co. with a trigger price of Rs95. He could choose to sell with a limit price of his choice or at market price.
So if the shares of ABC drop to trade at Rs95 his order is immediately triggered and pushed into the queue for execution.
This system finds similar application in the case of short positions.
Disclosed Quantity :
The system provides a facility for entering orders with quantity conditions: DQ order allows the member to disclose only a part of the order quantity to the market. DQ (Disclosed Quantity) should not be less that 10% of the Order Quantity and at the same time should not be greater than or equal to the Order Quantity.
Stop Loss Trigger Tool
The Stop Loss Trigger Tool is actually a bit of a misnomer.
This tool is most useful in protecting your profits on an open position. The Stop Loss order is a conditional order to either Buy or Sell.
The condition being that the order is activated only when that stock trades at a specific price defined by you. As is the case in any order, you will have to specify the quantity and the limit price (or market price) at which you want the order to be executed.
And in addition you will have to specify a Trigger Price.
Only if the Exchange records a trade at the price defined as Trigger price by you, will your order will be activated.
In case you choose to use a Limit price (as opposed to market price) for your Stop Loss order, you must remember the following guideline :
- - For a Buy order, the limit price must be greater than or equal to the trigger price.
- For a Sell order, the limit price must be less than or equal to the trigger price.
Remember even the stop loss tool is valid only for a trading day. If your stop loss order is not triggered during the trading day, it shall lapse automatically at the end of the trading session.
When do you use a Stop loss order?
The Stop Loss order is a great way for a trader to manage his exposure in the market. Lets us say that a trader wants to buy ABC company at Rs100 because he expects the price to rise to Rs120 in a short time. But he does not want to take an unnecessary risk and hence he wants to exit the trade (sell his shares) in ABC company if the price drops below Rs95.
So he first buys 100 shares at Rs100. Then to protect himself against an unexpected movement and limit his losses he would punch in a stop loss sell order for 100 shares of ABC Co. with a trigger price of Rs95. He could choose to sell with a limit price of his choice or at market price.
So if the shares of ABC drop to trade at Rs95 his order is immediately triggered and pushed into the queue for execution.
This system finds similar application in the case of short positions.
Disclosed Quantity :
The system provides a facility for entering orders with quantity conditions: DQ order allows the member to disclose only a part of the order quantity to the market. DQ (Disclosed Quantity) should not be less that 10% of the Order Quantity and at the same time should not be greater than or equal to the Order Quantity.
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