In general there are 2 types of warrant:
- Call Warrant
- Put Warrant
Call warrant is expecting the stock or index we buy to go up, means that if you bought HSI CW, and Hang Seng Index goes up then you will earn money. While, Put warrant is the opposite of call warrant, means that it expect it to go down then only can earn money.
If compare with Stock, this warrant is much more volatile and risky. The warrant you buy can go down until $0.005 or even until no value. That's why normally people trade warrant instead of investing on it. Unless you are really sure that you are in the right direction, you better trade it and set cut loss target properly and must be discipline to prevent big losses.
You can notice that, warrant will have letter and number written on it. For example HSI 17200 MBL ECW081230, it means that:
- HSI --> Hang Seng Index
- 17200 --> The value to be compared during expiry date
- MBL --> Company that produce the warrant
- ECW --> Call Warrant, if PW then it is Put Warrant
- 081230 --> Expiry date on 30 December 2008
Reference: HSI 17200 MBL ECW081230
If you purchase this warrant, it means that this warrant will expired on 30 December 2008. If you hold this warrant until its expiry date, the warrant producer will calculate the average last 5 days (you can clarify it with the warrant producer) of this HSI value and compare with the 17200 to decide whether you will earn money or loss money.
If the average of last 5 days is above 17200 then you will earn money, else you will loss your money. When you earn money doesn't means that you will totally get back all your money invested on it. Example, if you purchased this warrant $5000,00. At expiry date, eventhough HSI average is above 17200 (but not so far from it), its possible that you will just get back only $2000 after calculation. To get more details about the calculation and information you can try refer to http://www.dbwarrants.com.sg/
There are a lot of things you can read about warrant, but some important points you need to know are:
1. Time and Expiry Date --> When you buy warrant, you will have disadvantage of time decay. The closer this warrant to expiry date, then its price and value will be lesser.
2. Volatility --> Warrant is very volatile, you can easily earn or loss 30% in a day. During volatile market, it is quite normal that you can earn or loss 100% or even more than that in 1 day.
3. Volume --> If you want to trade warrant, trade the warrant that has high transaction volume to prevent being stuck with little movement and ended loss because of the time decay.
4. Shorting warrant --> Remember that for whatever reason you must never ever naked short warrant (sell it without buy back at the same day). Because, it can easily burn your money when SGX (Singapore Market) buy back for you. They will keep bid up the price until they manage to get the seller, you can easily loss 20 bids during volatile market. If you naked short $1000, it is not impossible that you might ended up have to pay $2000-$4000 if you are at the wrong direction during volatile market. Other than that, there will be some fees and penalty charges which is not cheap and also at this time SGX quite strict to naked short (even with stock). There will be high penalty charges if you naked short. So, remember that NEVER EVER naked short warrant.
5. Holding overnight --> When you buy HSI warrant, you can consider it as gambling if you hold it overnight. The difference is just that, you gamble is bet after you do your research. The reason is, because this warrant usually will refer to Dow Jones (DJIA) Index to decide its opening price the next day.
For example: This call warrant price ended at $0.45 at 05:05pm. Then at night DJIA increase 200 points. The next day, you might see the opening price will give you bet ween 10% to 30% profits. But, if DJIA close at negatif 200 points, then you might see the price of your warrant drop by 10-30%. If DJIA ended flat, you can see a slight drop of your warrant (approx 5%). The reason is because warrant has time decay as mentioned in point 1.
6. Market Maker --> Market Maker is the one set the buy and sell price of this warrant. Volatility and fast movement of warrant are controlled by them. For example, when you use market depth you can see both buy and sell queue quantity are 500,000. This is queued set by the Market Maker. During volatile market, they can easily take all the other queues done by the normal investors/traders when they adjusting the price. If in Casino, we can say Market Maker as a Dealer.
There are a lof more you need to know about warrant such as profit/loss calculation, which time is good to buy or sell, when to cut loss, etc. You should do more research, get some advice from experts and trade virtually before you trade with real money.
Trust me that, cut loss target discipline is the most important of warrant trading. Do not ended with false hopes and keep wait for your warrant to come back to the same price as you bought before if you are at the wrong direction. You might ended forever stuck and keep see your warrant price decreasing everyday because of the time decay.
Some important example:
You buy call warrant at $0.45 when HSI were 18000. Then currently your warrant price is only 0.35, because HSI index was dropping the last few days to 16500. Later on, maybe next week HSI managed to rebound back to 18000 or 18100, but your warrant price is only 0.41. This kind of situation is very normal when you trade warrant. The reason is like what I mentioned before, time decay. Other than that is speculation, people or Market Maker might assume this HSI index will drop again.
Conclusion:
It is better to trade warrant instead of investing on it. Unless you are confirm 90-100% with your decision to invest on it. Good Luck :)
Saturday, November 29, 2008
Tuesday, November 25, 2008
Next topic: Warrant
I will post some general descriptions of warrants. As for example, I will use HSI (Hang Seng Index) Warrants (Call and Put) by end of this week. Enjoy your day.. :)
Saturday, November 22, 2008
Stock
Stock is a share of ownership in a company. Stock is also known as share. Some people can also refer stock as another different financial products such as government bonds or those kinds of marketable securities.
For Singapore market and some other markets, usually each stock traded by lot. Generally, 1 lot is equal to 1000 shares, or 500 shares for some of the company. For example, if the share price is $10 and each lot is 1000 shares, then you must have $10,000 cash in order to purchase this stock.
As for US Market, Investor/Trader can trade the stock by quantity as little as 1 share. For example, if you have $1000 cash and you would like to buy Share A which price is $20, then you can just purchased 50 shares instead of 500 or 1000 shares like some other markets.
Some of the important key points before you purchase price, you must see the following factors:
1. NAV (Net Asset Value) --> The fair value of this share
2. EPS (Earning Per Share) --> The earning of this share quarterly/annually
During bullish market, you can see a lot of case where the current trading price of the share is much more than its NAV. For example, the NAV of Share A is 50 cents, but currently its traded at $5, that means the current price is 10 times higher than its NAV. This might happenned, because stock trading is always about speculation, so that the current trading price might be speculation by most of the people that keep push up the price.
For those shares traded many times above its NAV, it will suffer a big hit during economic downturn or bear market. If its NAV is just about 50 cents and it is traded at $5, then you don't be surprise if it can drop until 50 cents or even lower than that, which means investors might lose 90%+ of his money if he invested during the peak/high price. It just like a bubble that burst at 1 time after it keep being pumped up for quite sometimes. It might takes 2-3 years for it to goes up to current high level, but it can just take 1-3 months for it to come back the price 3 years ago..
Some important points that you need to know when you doing stocks trading:
1. Settlement/Payment Date --> Usually is T+3 days, some brokerages can give you up to T+5 days. If you have a good relationship with the brokerages, they might give you up to T+7 days. Note: T = Transaction Date. If after this period, you still haven't make any payment or close your position, then your brokerage will force sell your stocks (they will do it at certain time based on the stock's current price).
If you close your transaction before the due date, then it will be called as contra. By doing contra, you do not need to pay up to buy and sell your stocks. You just needed to settle up the result after you close your position. If you are at profit then you can get the money, else you have to pay the money. Contra trading can be very risky as sometimes market might not behave as what it suppose to be during certain period.
2. Margin/CFD (Contract for Difference) --> This 2 types of accounts are leverage trading account. You can just put your capital 33% for Margin or 20% for CFD to do your trading. It means that, if you have $2000 in your CFD account, you can trade and hold as much as $10000 as long as you meet the margin requirements. It will keep update your position based on your profit/loss. Example, if today your open position is at profit then you will be allowed to trade more. But, if your position is at loss and your money is insufficient to hold your current open position (margin call), then you might be needed to put up some money to meet the margin call.
This kind of Margin/CFD is very high risk with high return. If you are at the correct position and trend, then you can earn a lot of money with just a very little capital. But, if you made the wrong decision, then you can easily finished up your capital at one time. You might be even needed to put more money to pay up for the losses.
3. Short --> Shorting means that you sell the share first, then only you buy it before market close. If investor/trader feels that the company "A" going to release a bad earning report today, then they can short in the morning when market open and buy back later on with cheaper before market close. Please take note that, there will be some penalty fees if those shorting does not cover back his position on the same day (naked short). SGX will buy back or close your open position 3 days later (T+3).
For Singapore Market, at this time the penalty fees are quite high for those do not cover back his short position at the same day.
4. Share Borrowing --> This is similar like short, but with this type of account, investor/trader can short the stocks and does not need to cover his position on the same day. There will be some interest charged for Margin, CFD and Share Borrowing account.
There are a lot of more info that you can find about stocks trading. I just describe some important points in general. You can check with your brokerage to find more details about account type, settlement date, penalty charges, etc. I will update this section again when I feel there are some points I want to add in the future.
For Singapore market and some other markets, usually each stock traded by lot. Generally, 1 lot is equal to 1000 shares, or 500 shares for some of the company. For example, if the share price is $10 and each lot is 1000 shares, then you must have $10,000 cash in order to purchase this stock.
As for US Market, Investor/Trader can trade the stock by quantity as little as 1 share. For example, if you have $1000 cash and you would like to buy Share A which price is $20, then you can just purchased 50 shares instead of 500 or 1000 shares like some other markets.
Some of the important key points before you purchase price, you must see the following factors:
1. NAV (Net Asset Value) --> The fair value of this share
2. EPS (Earning Per Share) --> The earning of this share quarterly/annually
During bullish market, you can see a lot of case where the current trading price of the share is much more than its NAV. For example, the NAV of Share A is 50 cents, but currently its traded at $5, that means the current price is 10 times higher than its NAV. This might happenned, because stock trading is always about speculation, so that the current trading price might be speculation by most of the people that keep push up the price.
For those shares traded many times above its NAV, it will suffer a big hit during economic downturn or bear market. If its NAV is just about 50 cents and it is traded at $5, then you don't be surprise if it can drop until 50 cents or even lower than that, which means investors might lose 90%+ of his money if he invested during the peak/high price. It just like a bubble that burst at 1 time after it keep being pumped up for quite sometimes. It might takes 2-3 years for it to goes up to current high level, but it can just take 1-3 months for it to come back the price 3 years ago..
Some important points that you need to know when you doing stocks trading:
1. Settlement/Payment Date --> Usually is T+3 days, some brokerages can give you up to T+5 days. If you have a good relationship with the brokerages, they might give you up to T+7 days. Note: T = Transaction Date. If after this period, you still haven't make any payment or close your position, then your brokerage will force sell your stocks (they will do it at certain time based on the stock's current price).
If you close your transaction before the due date, then it will be called as contra. By doing contra, you do not need to pay up to buy and sell your stocks. You just needed to settle up the result after you close your position. If you are at profit then you can get the money, else you have to pay the money. Contra trading can be very risky as sometimes market might not behave as what it suppose to be during certain period.
2. Margin/CFD (Contract for Difference) --> This 2 types of accounts are leverage trading account. You can just put your capital 33% for Margin or 20% for CFD to do your trading. It means that, if you have $2000 in your CFD account, you can trade and hold as much as $10000 as long as you meet the margin requirements. It will keep update your position based on your profit/loss. Example, if today your open position is at profit then you will be allowed to trade more. But, if your position is at loss and your money is insufficient to hold your current open position (margin call), then you might be needed to put up some money to meet the margin call.
This kind of Margin/CFD is very high risk with high return. If you are at the correct position and trend, then you can earn a lot of money with just a very little capital. But, if you made the wrong decision, then you can easily finished up your capital at one time. You might be even needed to put more money to pay up for the losses.
3. Short --> Shorting means that you sell the share first, then only you buy it before market close. If investor/trader feels that the company "A" going to release a bad earning report today, then they can short in the morning when market open and buy back later on with cheaper before market close. Please take note that, there will be some penalty fees if those shorting does not cover back his position on the same day (naked short). SGX will buy back or close your open position 3 days later (T+3).
For Singapore Market, at this time the penalty fees are quite high for those do not cover back his short position at the same day.
4. Share Borrowing --> This is similar like short, but with this type of account, investor/trader can short the stocks and does not need to cover his position on the same day. There will be some interest charged for Margin, CFD and Share Borrowing account.
There are a lot of more info that you can find about stocks trading. I just describe some important points in general. You can check with your brokerage to find more details about account type, settlement date, penalty charges, etc. I will update this section again when I feel there are some points I want to add in the future.
Wednesday, November 19, 2008
Next topic: Stock/Share
I will post some details about Stock/Share by end of this week.. I will try to describe different finance product every week. I hope that some of my experiences can help new investors in the finance market.
Monday, November 17, 2008
Unit Trust
In General, Unit Trust can be described as a group of finance related products (stocks, bonds, commodities, etc) that being managed by the fund manager. Compare with some other products such as Stocks or Warrants, this product is much more lower risk. But, remember that it doesn't mean no risks.
Each unit trust has a brief description which is quite important for the investor to be aware of, such as:
- What kind of products that it will be invested in? e.g. Equity.
- Geographical Allocation - e.g. Asia, China, Europe.
- Launch Date? The date this Unit trust being launched.
- Included under CPFIS OA / CPFIS SA (Singapore) - This indicate whether the investor can purchase the Unit Trust using their CPF Ordinary Account / CPF Saving Account.
- Fund Size - This indicate how big the size of this fund, how much people have invested inside.
- Fund Manager - Indicates Who manage this Unit Trust.
- Fund Charges - Initial Sales Charge (normally about 2% - 5%), Annual Management Charge (e.g. 1.5%). Usually, if you buy from the bank, the Sales Charge will be about 5%. If you use another service such as Fundsupermart or some other brokerages, they will charge you about 1.5% - 2%.
- Fund Performance - Shows the performance of this Unit Trust in the last 1 week, 1 month, 3 months, 1 year, etc.
- Latest NAV Price - This will be the current value / price for this Unit Trust
e.g. Current NAV: $1.5, and you decided to invest $3000 with the sales charge is 2%, you will have around ($3000 - 2%) / $1.5 = around 1960 units of this product.
Please take note that, usually the NAV written are the price for 1-2 days ago. So that, if you decide to purchase it today, the price might not be $1.5 which you can know 1-2 days later. It might be higher or lower depend on the fund performance.
- Risk Classification - High Risk High Return, Low Risk Low Return. Investor must choose product that suit with their risk appetite.
- Minimum Initial and Subsequent Investment - Minimum first time investment and minimum additional investment after that.
Notes: After you bought this unit trust, usually when stated in the portfolio it will shows the unrealized profit/loss around -2%. You do not need to worry about that, this 2% is actually the sales charge that incurred when you purchase this Unit Trust.
There are some of other things that investors need to know such as fund intra switching, fund inter switching (switch your current Unit Trust with another Unit Trust based on the current value) which they can find more details about it from the brokerage regarding the free switch, costs, etc.
Each unit trust has a brief description which is quite important for the investor to be aware of, such as:
- What kind of products that it will be invested in? e.g. Equity.
- Geographical Allocation - e.g. Asia, China, Europe.
- Launch Date? The date this Unit trust being launched.
- Included under CPFIS OA / CPFIS SA (Singapore) - This indicate whether the investor can purchase the Unit Trust using their CPF Ordinary Account / CPF Saving Account.
- Fund Size - This indicate how big the size of this fund, how much people have invested inside.
- Fund Manager - Indicates Who manage this Unit Trust.
- Fund Charges - Initial Sales Charge (normally about 2% - 5%), Annual Management Charge (e.g. 1.5%). Usually, if you buy from the bank, the Sales Charge will be about 5%. If you use another service such as Fundsupermart or some other brokerages, they will charge you about 1.5% - 2%.
- Fund Performance - Shows the performance of this Unit Trust in the last 1 week, 1 month, 3 months, 1 year, etc.
- Latest NAV Price - This will be the current value / price for this Unit Trust
e.g. Current NAV: $1.5, and you decided to invest $3000 with the sales charge is 2%, you will have around ($3000 - 2%) / $1.5 = around 1960 units of this product.
Please take note that, usually the NAV written are the price for 1-2 days ago. So that, if you decide to purchase it today, the price might not be $1.5 which you can know 1-2 days later. It might be higher or lower depend on the fund performance.
- Risk Classification - High Risk High Return, Low Risk Low Return. Investor must choose product that suit with their risk appetite.
- Minimum Initial and Subsequent Investment - Minimum first time investment and minimum additional investment after that.
Notes: After you bought this unit trust, usually when stated in the portfolio it will shows the unrealized profit/loss around -2%. You do not need to worry about that, this 2% is actually the sales charge that incurred when you purchase this Unit Trust.
There are some of other things that investors need to know such as fund intra switching, fund inter switching (switch your current Unit Trust with another Unit Trust based on the current value) which they can find more details about it from the brokerage regarding the free switch, costs, etc.
Sunday, November 16, 2008
Market Trading Hours
For starting, we need to know the market trading hours for different countries. It's because different countries market performance might affecting each other. Some of the market trading hours are as follows:
1. Tokyo Stock Exchange (TSE) - Nikkei 225 (^N225)
Time: 8.00am - 10.00am, 11.30am - 2.oopm
2. Singapore Exchange (SGX) - Strait Times Index (^STI), SESDAQ
Time: 9.00am - 12.30pm, 2.oopm - 5.00pm
3. Malaysia Stock Exchange (Bursa Malaysia) - KLSE Comp (^KLSE)
Time: 9.00am - 12.30pm, 2.30pm - 5.00pm
4. Hong Kong Stock Exchange (SEHK) - Hang Seng Index (^HSI)
Time: 10.00am - 12.30pm, 2.30pm - 4.00pm
5. London Stock Exchange (LSE) - FTSE100 (^FTSE), DAX (^GDAXI), CAC 40 (^FCHI)
Time: 3.00pm - 11.30pm (Summer), 4.00pm - 12.30am (Winter)
6. American Exchange (AMEX), NASDAQ (NASD), New York Stock Exchange (NYSE) - Dow Jones Industr Average (^DJI), NASDAQ Composite (^IXIC), Standard and Poor's (S&P)
Time: 9.30am - 4.00am (Summer), 10.30pm - 5.00am (Winter)
1. Tokyo Stock Exchange (TSE) - Nikkei 225 (^N225)
Time: 8.00am - 10.00am, 11.30am - 2.oopm
2. Singapore Exchange (SGX) - Strait Times Index (^STI), SESDAQ
Time: 9.00am - 12.30pm, 2.oopm - 5.00pm
3. Malaysia Stock Exchange (Bursa Malaysia) - KLSE Comp (^KLSE)
Time: 9.00am - 12.30pm, 2.30pm - 5.00pm
4. Hong Kong Stock Exchange (SEHK) - Hang Seng Index (^HSI)
Time: 10.00am - 12.30pm, 2.30pm - 4.00pm
5. London Stock Exchange (LSE) - FTSE100 (^FTSE), DAX (^GDAXI), CAC 40 (^FCHI)
Time: 3.00pm - 11.30pm (Summer), 4.00pm - 12.30am (Winter)
6. American Exchange (AMEX), NASDAQ (NASD), New York Stock Exchange (NYSE) - Dow Jones Industr Average (^DJI), NASDAQ Composite (^IXIC), Standard and Poor's (S&P)
Time: 9.30am - 4.00am (Summer), 10.30pm - 5.00am (Winter)
Welcome
Welcome to Finance Market for Beginner blog. This blog will try to explain related finance product including stocks, warrants, bonds, futures, forex, unit trusts, etc..
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