ebook on stock market concept_0.pdf

Efficiency, Manipulation & Stock Trading

12 things you always wanted to know about

Functioning of the

Stock Markets

- By Sana Securities

Table of Contents

1. How to Start Investing in Stocks in India? ........................................................................... 2

2. Learn About Stock Market Basics Indian Stock Market ................................................... 6

3. How share prices change discovering the Equilibrium Price .......................................... 11

4. Can you buy sell stocks after market hours? ....................................................................... 12

5. Circular Trading in Stock Market ...................................................................................... 15

6. How Do Circuit Breakers Work in The Stock Markets? ..................................................... 17

7. Futures and Options Lot Size Margin Amount and Number of Shares ............................ 19

8. How Futures and Options Affect Share Prices? .................................................................. 22

9. What Does Open Interest in Stock Market Indicate? .......................................................... 24

10. How Stop loss Orders Work on Hitting Trigger Price ........................................................ 29

11. Stock Market Operators How Do They Do It?................................................................. 32

12. How Share Market is used to Convert Black Money into White ........................................ 34 Sana Securities Page 1

Chapter 1

How to Start Investing in Stocks in India?

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock

Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in existence since 1875.

The NSE was founded in 1992 and started trading in 1994. Both exchanges follow the same trading

mechanism, trading hours, settlement process, etc. There are 7,000 + stocks listed on the BSE which is

the larger of the two exchanges in terms of number of companies listed. However, only 3,000 of these

stocks are actively traded. How to Start Stock Investing?

To start investing in the stock markets, you need 3 types of accounts Trading Account (to place buy/sell

orders), Demat Account (to hold your shares in dematerialized form), and a Bank Account (for fund

transfers).

Trading Account - An account similar to a bank account, to be opened with a stock exchange registered stock broker. This account is used for placing orders in the stock exchange (i.e. to buy/sell shares).

Demat Account - An account where shares are held in a dematerialized form (i.e. electronically instead

of the investor taking physical possession of certificates). The demat account is required to

receive/transfer shares when you buy/sell shares through your trading account.

Bank Account - Your regular savings or current bank Account should be linked to your trading account.

The Bank account is required to transfer/receive money when you buy/sell shares through your trading

account.

Typically, if you sign up with a stock broker, they will guide you on not only the opening of the trading

account but also the demat account and linking of your bank account. Just like banks provide you with the

facility to open and maintain saving accounts, in the same way the Depositories* provide the facility to Sana Securities Page 2

open and maintain demat accounts. In India, the government has mandated two entities National Securities Depository (NSDL), and Central Depository Services (India) (CDSL) to be the custodian of dematerialized securities.

Most big stock brokers register themselves as a Depository Participant (DP) who act as an agent of

the Depositories to make its services available to the investors. Effectively both your trading account and

your demat account is maintained by your stock brokers (mostly through setting up of 2 different entities).

In case of some stock brokers, they use the depository services of other bigger financial institutions or

custodians and only provide the front end trading account. As an investor, no one approach is better than

the other for you, as typically, it takes the same amount of time for shares to be deposited and withdrawn

from the demat account in either case. To open a trading / demat account, follow the following process:

1. Approach a BSE and NSE registered stock broker.

2. Fill up the KYC form provided by the stock broker.

3. Attach the required documents (i) identity proof and (ii) address proof.

4. Produce the original PAN card during account opening.

5. For Derivatives segment (i.e. futures and options market), 6 months account statement of your

existing bank account is required.

6. One cancelled cheque of the bank account you want to link to your trading account.

7. 3 passport size photographs What you should look at before opening Demat and the trading account schemes:

1. Account Opening Charges: This is the fee charged at the time of opening demat and trading

account.

2. Account Maintenance Charges: This is the annual fee charged to maintain demat & trading

account.

3. Brokerage Charges for Intraday transaction: If you take a position (buy) on a stock and release (sell) that position before the end of that days trading session, it is described as intraday trading.

The brokerage charges for intraday transaction are very nominal (mostly between 0.02%-0.05 % on the total cost of transaction).

4. Brokerage Charges for transaction requiring delivery: If you buy a share and hold it beyond that

trading session (i.e. for a term longer than one day) or when you sell a share you own and do not

buy it back during a single trading session, the transaction qualifies as a delivery based

transaction as the name of the owner of the share is changed with the Depository. The brokerage

charges are higher in this case as additional processing is required (mostly they range between

0.08%-0.55% on the total cost of transaction). Sana Securities Page 3

5. Brokerage Charges for Futures and Options transaction: The Brokerage fees applied on the

transaction in the Futures and Options segment (mostly varies 0.02 0.05% on the total cost of

transaction for futures and Rs 25 Rs 100 per lot for option contracts).

6. Apart from the brokerage charges, you may want to consider the software/ technology provided

by the stock broker for online trading and if the stock broker has a good service standard for call

and trade facility (to enable you to place orders over the phone).

These days, most big commercial banks provide trading and demat account services and link it to

your savings account. Although their brokerage charges are slightly higher than specialized stock

brokerage firms, unless you are a regular/ heavy volume trader, you should open your trading and demat

account with your bank itself. For high volume traders, there are many specialized stock brokers to

choose from. A comparison of brokerage charges for some popular ones is given below:

The big advantage of having an account with a Bank (like HDFC, ICICI etc) is that they typically

provide a three-in-one-account (i.e. savings account, trading account and demat account are all linked to

each other). Having all these accounts linked to each other ensure that you get a completely paperless

mechanism for trading. In addition, this ensures smooth and real time transfer of money to and from your

bank account. On the other hand a specialized broking firm will typically provide you with a demat

account and a trading account. The trading account is then linked to your bank account for transfer of

funds. In this case, the transfer of funds is not real time and can take anything between one to three days.

For heavy volume traders, it is advisable to open your account with a specialized brokerage house. Not

only do they have an extremely low brokerage rate but also offer fixed monthly brokerage schemes for

heavy traders. Under these plans, the brokerage firm charges you a fixed sum every month and enables

unlimited trading for the whole month. If you are an F&O trader implementing advanced option trading

strategies, your brokerage charges will surely rack up to an amount much higher than the fixed monthly

charge plans offered by most discount brokers. In such a case you may be well advised to switch over to an unlimited monthly brokerage plan. ____________________________________________________ *A Depository refers to An organization that facilitates holding of securities in the electronic form and enables DPs to provide services to investors relating to transaction in securities.

Sana Securities Page 4

Here you can find the account opening forms of some of the banks and brokerage houses:

axisdirect.co.in midoffice.motilaloswal.com hdfcsec.com Sana Securities Page 5

Chapter 2

Learn About Stock Market Basics Indian Stock Market I think it is extraordinary that I meet so many people who are absolutely, and 100% convinced that they

cannot understand finance or how to invest in the Indian stock market. Their reason oftentimes is that it

is extremely dry, or it will be too difficult for them to understand. I am not sure how many of them make

any effort at all.

Those who have not obtained any formal education in finance (kind of like me!), but want to learn about

stock market basics and become independent investors face yet another difficultyHow much should

they learn?

First- finance, the amount you need to learn to be an extremely successful investor, is neither dry nor

difficult. Second-the list of topics presented below, if understood correctly, will be more than sufficient knowledge

for anyone who wants to be a successful investor. Of course, going through this material (and even learning it) will be easy, what is difficult is to practice it

and actually do some research on your own. Neither I, nor anyone else can do that for you. Nevertheless, once you understand the basics of how broader economy impacts the Indian stocks market

(Read economic cycles) and how your psychology plays a role in investing (Read What do you

need to be a successful stock investor), you should be ready to start analyzing stocks yourself.

Keep in mind that using fundamental analysis as your basis for investing could be frustrating in the short

term as stock prices are mostly unpredictable in the short term. However, in the long term, fundamental

analysis has time and again proved to be the safest and the most successful approach to investing. Watch this video lesson to understand the basics of fundamental analysis. The below rather dramatic

and volatile price movement of this stock is a case in point: In hindsight it sure is exciting to look at these prices and talk about them. When did you buy? When did

you sell? How does one know when its the right time to buy/sell? Sana Securities Page 6

The other approach (i.e. fundamental analysis) is to check if the business is reasonably valued, expected

to improve earnings in future, and is run by efficient and competent people. If you answer yes to all, just

buy and forget for a few years.

If you are someone who wants to follow the latter approach, then the material presented below will prove

to be extremely beneficial in helping you learn about stock market basics. Approach it like a systematic

well organized to do list:

Have you studied the business? Do you understand the business i.e. what does the

company do? Make a one page profile of the

company asking questions presented on this page

Create Company Profile

Have you studied those who are responsible This is perhaps the most important aspect of any

for running the business? corporate research and perhaps also the one which

is frequently ignored. Before going any further, try

to get an answer to such questions as:

Is the management honest?

Are they competent, skilled, well-connected

i.e. do they have what it takes to run the

business?

Are their promises (the ones they make in

the annual reports or otherwise) rational,

achievable?

Have they been making efforts to fulfill their

promises? Or does every annual report

present a new promise?

On this page you will find video lessons on

things to check about the management before

investing Role of Corporate Governance

FINANCIAL ANALYSIS

Ratio Analysis Key Ratios:

Operating and Net Profit Margin Ratios measure in percentage terms,

the profit being generated for each rupee of sales which the company

makes. Operating Profit Margin measures the return being generated by

the business purely from its operations while the Net Profit Margin

indicates what is left for the owners (i.e. shareholder) after accounting for


all other costs associated with conducting the business, such as

depreciation, taxes etc.

Video Link Operating Profit Margin Ratio | Net Profit Margin

Ratio

Return on Capital Employed (ROCE) and Return on Equity (ROE)

or Return on Net Worth (RONW) is used to measure the profitability of a

company based on the funds with which the company conducts its

business. While each ratio is a metric to measure returns, ROCE measures

the overall return and ROE measures the return attributable only to the

shareholders.

Video Link Return on Capital Employed | Return on Equity Ratio

Current Ratio indicates in percentage terms the working capital (i.e.

current assets current liabilities) with which the company conducts its

business operations. Current assets include cash and liquid assets that can

be readily converted to cash such as accounts receivable, inventory,

marketable securities, prepaid expenses etc. Similarly current liabilities

are obligations of a company which are due within one year and include

short term debt, accounts payable, accrued liabilities and other debts of

similar nature.

Video Link Current Ratio

Long Term Debt to Equity Ratio indicates the extent to which a

company relies on external debt financing to meet its capital requirements.

If a company can employ more debt and generate higher earnings than the

amount needed to service the debt (i.e. interest charges), it improves the

return to the shareholders as more earnings become available for

distribution after payment of interest charges.

Video Link Long Term Debt Equity Ratio

Interest Coverage Ratio measures a companys operating profit (i.e.

earnings before other income, interest, tax, depreciation and amortization)

relative to the amount of interest charges which the company pays. It

indicates the extent to which earnings are available to meet the interest

expenses. A Higher Interest Coverage Ratio indicates that the company

can easily meet the interest expense pertaining to its debt obligations and

vice versa.

Video Link Interest Cover Ratio


Must Read - Key Things to keep in Mind when conducting Ratio Analysis Ratio Analysis of

financial statements

Valuations Price/ Book Value Ratio (P/B ratio) is used to compare the market price

of the share to its book value and is calculated by dividing the Market

Price per share by Book Value per share. P/B ratio usually works well only

for companies which have large assets on their books such as,

infrastructure and real estate companies, or companies in other

manufacturing sectorssteel, automobiles etc.

Video Link Intrinsic Value of Share

Price Earnings Ratio (P/E Ratio) is the most commonly used method of

valuing companies. It is arrived at by dividing the current market price of

the equity share by its EPS. PE Ratio can be calculated by dividing the

current share price by the trailing 12 months EPS i.e. reported EPS of the

last 4 quarters. A high P/E ratio indicates that the investors are expecting

the earnings (and accordingly the price of the companys shares) to grow

at a faster rate and vice versa.

Video Link Price to Earnings Ratio

Discounted Cash flow (DCF) Analysis is a widely used model for

determining the fairness of stock prices. The goal is to estimate the

amounts and dates of expected cash receipts which the company is likely

to generate in future and then arriving at the present value of (the sumof)

all future cash flows using an appropriate discount rate.

Video Link DCF Analysis


Chapter 3

How share prices change Equilibrium Price Given what I do, it is not unusual for me to meet investors who have become extremely wealthy in the

stock markets as also those who have lost a sizeable portion of their wealth. The very nature of the market

is such that for every successful investor there will be someone who lost money. The quote below

summaries the reason for this, in the most articulate manner:

One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute Peter Lynch Share prices change because there is always someone willing to buy what you are selling at a certain

price, if not, the trade would simply not happen. Of course, how share prices change in future is what

will determine the merits of a trade and will reward the buyer / seller accordingly.

So remember, the next time you are planning to buy / sell a share, read this quote by Lynch, I bet you will

think 100 times before placing that order. The biggest reason why so much money gets lost in shares is because people jump into the share markets

with little idea about how they really work. Those who are yet unclear on why Lynch would quote as

above, often spend hours executing complex option strategies. On the other side of each trade is usually

someone who has spent a lifetime sharpening his skills and training his psyche to undertake such

activities. He is confident of what he is doing. Often intelligent, well connected, and conscious that he

will be executing trades for a very long time in future.

As share prices change, money also (regularly) changes hands between market participants and its not

hard to guess which way it flows in a scenario like the one above. The perception this causes is such that

the average person starts viewing the stock market as a place for legalized gambling, where every

morning people place bets and win or lose small or big amounts of money. The truth is that this is exactly

what seems to be happening for many of them. At least until they get tired of betting.

Fortunately or unfortunately once listed, how share prices change is BASED PURELY ON THE

DEMAND AND SUPPLY OF SHARES. When more people demand a share, its price moves, when more

people sell it, its price moves down. This demand and supply establishes an equilibrium price which is

where the share trades. It is a rather simple mechanism, though one frequently overlooked: Price of a

share changes because of the demand and supply pressure on the share and FOR ABSOLUTELY

NO OTHER REASON.

If for absolutely no reason, a few of us got together and started buying a large number of shares in a loss making company, the share price of such company could indeed rise dramatically. Sana Securities Page 10

How share prices change discovering the Equilibrium Price

I dont want to get into any technical aspects but it may be helpful to understand the concept of

equilibrium price. In stock markets you can see this equilibrium price being created by the demand and

supply pressure on shares. Look at the screenshot of this companys shares trading on the exchange.

Buyers and sellers have entered their bids at prices at which they will be willing to buy and sell the

disclosed quantity of shares. In addition to the pre-entered bids, you can also buy in the open market. So

for example if you place an order for 10,000 shares at the market price of Rs. 66.65, instead of entering a

price limit bid, the market will quickly buy 10,000 shares at whatever price they are available. In the

above example, you will end up buying the lots of 368, 296, 1, 5310 (circled in red) and a part of the lot

of 5,749 (i.e. until you get 10,000 shares). This will disturb the equilibrium because the price will

suddenly shoot up to Rs. 66.90 levels. When it finds no buyers at those levels, it will come down

gradually to wherever it finds buying and selling equilibrium.

It is important to keep in mind that while buying and selling (or demand and supply) of shares should be

based on reasons such as growth prospects of the company, an estimation of corporate profits in future,

success of companys products and other such business reasons; even if buying and selling happens for no

reason at all, it will still have the same effect on the share price. Stock market operators and

manipulators regularly indulge in such aggressive buying and selling to give the impression that

something big is afoot. The idea often is to bring in more investors to buy a sharply rising share. Once the

price of the share rises substantially, the operators sell their entire holding and exit with a handsome

profit. Sana Securities Page 11

Chapter 4

Can you buy sell stocks after market hours? Constant news flow and major corporate announcements after market hours make many wonder if they should buy/sell their stocks as soon as the market opens? For example when a company reports really bad quarterly results or an extremely bad news surfaces post trading hours, far too often, investors wonder if they should sell their holding immediately. If you are sure that you want to trade (i.e. buy or sell) on the basis of such announcement, you really dont

have to wait until the next day. You can trade in the aftermarket hours. I.e. after the stock markets close

for trade at 3.30 PM IST and before they opens at 9.15 AM IST (depending of course on whether your

stock broker allows that most brokers do these days).

Does selling in after market hours give you any advantage?

Short Answer Investors often (wrongly) believe that selling in after market hours will ensure a better

sell rate for the stock when the market opens (and vice-versa). If you are the first one to buy a stock in

closed market hours, you will get the first share to be traded in the morning when the market opens. The

truth is that after market hour orders will not be of much help in such scenarios (on the contrary, they

may actually result in a loss).

At best After Market Orders or AMOs are meant for those investors who for whatever reason do not

have access to the markets during normal hours (for example for someone who may be overseas or in a

different time-zone etc).

For those who may be curious and are interested in some technicalities, let me explain what happens to

aftermarket hour orders and you can decide if it helps or hurts more (on a case by case basis).

Market Timings Related question what is the pre-open session (i.e. what happens in the 15 minutes from 9.00 AM to 9.15 AM)

In regular market (i.e. 9.15 AM 3.30 PM), chances are pretty good that you will find someone to buy at your desired price. There is enough liquidity as most trading happens during this time.


Unlike regular orders, after market orders are not immediately sent to the exchange. Naturally, as the

exchange is closed for business during this time. These orders sit with your broker who sends them to the exchange before it opens for trade for the next

trading session. Consequently, the equilibrium for these orders is not formed in a live market but in the

pre-market trading session. The same rules of price and time stamping as they apply to regular market

orders [1], do not apply in this case. For a helpful chart on how equilibrium price gets established in

regular market hours visit here.

After market hour orders are matched in the pre-trading session. The order matching in pre trading

session happens in the following sequence:

Match-able buy limit orders are matched with match-able sell limit orders.

Residual buy or sell eligible limit orders are matched with market orders.

Market orders are matched with market orders.

Determination of Equilibrium Opening Price The equilibrium price is the price at which the maximum quantity can be matched. In case more than one

price meets the said criteria, the equilibrium price is the price at which there is minimum unmatched order

quantity.


Example of how Equilibrium Price determination actually works? Based on the principles of demand and supply, the exchange comes up with an equilibrium price for all

orders places in the pre-open session. This is the price at which maximum number of shares can be

bought / sold. In below example this price = Rs. 205. This becomes the opening price for the next trading

session and all unmatched orders are queued in the system with the same rules of price and time stamping

as they apply to regular market orders.

Points to remember regarding pre-trading session in India.

After finding the equilibrium price all orders are executed at the equilibrium price and all

unexecuted orders are carry forwarded in open market in the following way: Limit orders at limit price

Market orders at final equilibrium price (opening price)

If opening price is not discovered, market orders at previous days closing price.

Price band of 20% shall be applicable on the securities during pre-open session i.e. if the closing

price of scrip is Rs. 100, you cannot place an order beyond Rs. 80 Rs. 120 price range during pre- open session.

____________________________________________________ [1] (i.e. similar priced buy and sell orders are matched first. If there is more than one order at the same

price, the order entered earlier gets a higher priority) Sana Securities Page 14

Chapter 5

Circular Trading in Stock Market Circular trading in stock market refers to a fraudulent trading scheme where buy/sell orders are

entered by a person or by persons acting in collusion with each other to operate the price of the

underlying security. The person(s) buying or selling knows that the same number of shares at the same

time and for the same price will be entered to neutralize the transaction. Hence, these trades do not

represent a real change in beneficial ownership of the security.

The only intention behind such buying or selling is raising or depressing prices of the underlying

securities by increasing trading volumes. The participants involved in such trades make use of their prior knowledge and enter orders knowing that

those orders will be covered by reverse orders of the same size, at the same time and price. This increases

the trading volumes in the underlying security and generates interest from other investors. When trading

volume in a particular script increases, it leads other investors to believe that something big is afoot (such

as a merger or an acquisition) and that the interest in the underlying security is genuine. In short the intention of those who initiate circular trading is to con investors and traders into buying or

a selling the operated script.

In the above example, each subsequent trader is willing to buy the stock at the previous traders sell price

to generate high trading volumes. Sana Securities Page 15

For example, if there is any news on the issuance of bonus share by a company, the traders involved in

circular trading may enter into matching deals among themselves (i.e. buy and sell order) at a price

similar to or higher than the prevailing market price. As the trading volume increases, other investors will

start buying the stock at which point those who initiated the circular trades will slowly start booking

profits and exit from the transactions while other investors are caught unaware of the real situation.

Some Cases of Circular Trading in India

1. Ketan Parekh is alleged to have been involved in one of Indias biggest stock market scams dating

back to 1999-2001. Currently he is debarred from trading in the Indian stock exchanges till 2017.

He was accused of inflating share prices of the firms like Zee Telefilms, Ranbaxy, Global

Telesystems, Himachal Futuristic Communication (HFCL), Silverline, Satyam Computers, among

others, using circular trading.

2. SEBI discovered another incidence of circular trading by two brokers over the stock of Videocon

Industries Ltd. in 2004. The involved brokers were Mansukh Securities and Finance Ltd. (MSFL)

and Intec Shares and Stock Brokers Ltd. (ISSL). Together, they deflated the share price from Rs.

36.15 to Rs. 28.19 i.e. a 20% fall. In 2012, Sebi imposed penalties of Rs 2 lakh each on the two

brokerage firms.

3. SEBI accused Angel Broking of working with the three other brokerages to create artificial volumes

in shares of Sun Infoways Ltd from February 5 to March 2 in 2001. Shares of Sun traded in the

range of Rs 342 to Rs 296 during that period, after which shares slumped to as low as 60.75 rupees

on April 30, 2001, while trading volumes reduced drastically.

4. In 2009, SEBI barred Shankar Sharma, the Joint Managing Director of First Global Stock Broking Limited, Shankar Sharma for 1 year, for circular trading.

To prevent circular trading in the stock market, SEBI has introduced price filters:

Intraday price bands permits the stock to be traded within a range during a trading session. It aims at

preventing intraday price swings.

Inter week price band has a wide range within which stocks are permitted to be traded in a week. It

prevents huge swings in prices rippling into the next settlement cycle. SEBI imposed a uniform

intraday price band of 10 % for all securities on all stock exchanges, in addition to 25 % weekly

price cap being followed by all exchanges.

Margins are additional filters applied by the stock exchanges to curb the price volatility. For every

transaction undertaken by the broker he has to deposit a margin amount to the stock exchange. The

margin amount paid is used as a tool to discourage speculative and circular trading.


Chapter 6

How Do Circuit Breakers Work in The Stock Markets? In the simplest language possible a circuit breaker or circuit filter signifies the maximum that a stock (or

the market as a whole) could rise or fall before trading in that specific stock (or in the market as a whole)

is halted for a certain duration of time. Once a circuit breaker is applied, no orders can be placed until the trading resumes. However, existing orders with your broker can be modified/ cancelled.

2 points are worth keeping in mind:

[I] Why the need for circuit breakers?

Oftentimes, stock prices fall (or rise) based on news flows; imagine a bad news which leads a panic sell

off which results in a domino effect. As more and more investors start dumping their stock, valuations

and price often lose their inherent correlation. To avoid an unwarranted selloff and in order to give investors a chance to reconsider their decision,

trading in the stock is halted for a certain period of time. Similarly, when there is an unwarranted buying,

the filter is applied so that investors are not swayed by artificial exuberance, if such were to be the case.

[II] At what level are circuit breakers applied? Two separate things are at play with regard to the level at which circuit breakers are applied.

Circuit Limits: On exchange wide basis (Sensex and Nifty), there are three levels at which the circuit breaker kicks in

10% | 15% | 20%. Once the S&P BSE Sensex or the Nifty 50 moves that much in either direction,

trading is halted in all equity and equity derivative markets across the country.

On stock basis, circuit filters are applied at 2% | 5% | 10% | 20% levels. The exchange has pre-defined

list of scripts for each of these levels. Circuit breakers are not applied to scripts on which derivative

(F&O) products are available and which are part of indices on which derivative products are available.

Timing:

If the 10% movement happens before 1 PM (in either direction), there is a 1 hour halt in trading. If such

movement takes place before after 1 PM but before 2.30 PM, there is a halt of 30 minutes. If the

movement happens after 2.30 pm, there is no halt. Sana Securities Page 17

Once the market reopens for trading, the circuit breaker limits are revised such that a further 10%

movement will not halt trading but in case the movement exceeds 15%(in either direction), there is a halt

in trading. In case, the further 15% movement takes place before 1 PM the halt is 2 hours. if the

movement is after 1 PM but before 2 PM the halt is 1 hour. There is no halt in case the movement

happens after 2 PM.

Once the market reopens for trading if it hits 20%, trading stops for the rest of the day.


Chapter 7

Futures and Options Lot Size Margin Amount and Number of Shares

In the stock markets, participants can trade in 2 segments:

i. Cash segment; and ii. Futures and Options (Derivative) segment.

Participants in the cash market can buy/sell any number of shares of a company (i.e. they can buy

anything from a single share to thousands of shares). On the other hand, in the futures and options

segment, participants buy contracts which have a pre-determined lot size depending upon the

underlying stock.

To explain with Example:

You want to buy Infosys futures contract which has a lot size of 125 shares this is the same as buying 125 shares of Infosys.

You want to buy an IDBI futures contract IDBI has a lot of 4,000 shares this is the same as

buying 4000 shares of IDBI.

The lot size is set for each contract and it differs from stock to stock. Further, in the cash segment you must pay the full price to buy a share (other than in case of intra-day

margin trading#); in the futures and options segment you pay:

For buying option lots a fee called the premium.

For buying future lots an Initial Margin amount which is a fraction of the total price of the

underlying share.

What does this lot size mean? Lot size refers to the number of underlying shares in one contract. In other words, it refers to the quantity

in which an investor in the market can trade in the Derivative of particular scripts / stocks. The

table below shows the lot sizes of some of some frequently traded stocks: Sana Securities Page 19

Underlying Symbol Lot size NIFTY NIFTY 50 Infosys Limited INFY 125 Axis Bank Limited AXISBANK 250 Kotak Mahindra Bank limited KOTAKBANK 500 ITC Limited ITC 1000 BHEL BHEL 2000 Syndicate Bank SYNDIBANK 4000 JSW Energy Limited JSWENERGY 8000 NHPC limited NHPC 12000

How many shares are there in 1 futures and options lot?

As per a standing committee recommendation to amend the Securities Contract (Regulation) Act, 1956

the minimum contract size of derivative contracts traded in the Indian stock markets should be pegged not

below Rs. 2,00,000*. Based on this recommendation SEBI had specified that the value of a derivative

contract should not be less than Rs. 2, 00,000 for a futures and options contract. Accordingly, the lot size is determined keeping in mind this minimum contract size requirement. For

example: if one share of XYZ Limited trades at Rs. 500, then the futures and options lot size of XYZs

contracts should be at least 400 shares (calculated on the basis of minimum contract value Rs.

2,00,000/500 = 400 shares).

Value of one futures or options contract is calculated by multiplying the lot size with the share price. For example the lot size of Asian Paints futures is 500 shares. So, buying 1 lot of Asian Paints futures

(or 1 option lot lot size is the same for both futures and options) would involve buying 500 shares, of

course by paying only a fraction of the amount (i.e. the margin amount). So if the Companys share is

trading at Rs. 470, then the value of 1 lot will be Rs. 2,35,000 (Rs. 470 x 500)**.

Price Band

Lot size

Price >= 1,601 125

801-1600 250

401-800 500

201-400 1000

101-200 2000

51-100 4000

25-50 8000

< 25 A multiple of 1000

Note: This change is not applicable to index contracts like Nifty Sana Securities Page 20

On January 2010, SEBI took a decision to standardize the lot size for derivative contracts on individual

securities. Effective from March 2010, the lot size for stocks which have a price greater than or equal to

Rs. 1,601 is 125. Stocks in the price band of Rs. 801-1,600 is 250, between Rs. 401-800 is 500, between

Rs. 201-400 is 1,000, between Rs. 101-200 is 2,000, between Rs. 51-100 is 4,000, between Rs. 25-50 is

8,000 and stocks less than Rs. 25 in price have lot sizes in multiples of 1,000.

Note: This change is not applicable to index contracts like Nifty The idea is to maintain the contract size of derivatives between Rs. 2, 00,000 and Rs. 4, 00,000. Since

stock prices are constantly changing, the exchange review the lot size once in every six months and

revise the lot size by giving an advance notice of at least two weeks to the market. _____________________________________________

# Margin trading is a leveraging mechanism, which enables investors to take exposure in the market over and above

what is possible with their own resources. It allows an investor to put as security (i.e. margin), their shares or a

fractional amount of cash and get 3-4 times more exposure than the value of the shares put up as margin. The risk

here is that if the investments made on this leverage decline more than the amount of security (i.e. margin), then the

investor must either deposit more money or more security to top up their margin account. If this is not done, the

financiers will sell the security in the market.

* The Standing Committee on Finance, a Parliamentary Committee, at the time of recommending amendment to

Securities Contract (Regulation) Act, 1956 had recommended that the minimum contract size of derivative contracts

traded in the Indian Markets should be pegged not below Rs. 2,00,000.

** Accordingly you will have to put a margin amount of Rs. 29,375 to buy a single lot (i.e. the current margin

requirement for Asian Paints being 12.5%)


Chapter 8

How Futures and Options Affect Share Prices? Of course, the price of derivatives (including futures and options) has a major impact on the price of the

underlying share (and vice versa). How you can as a trader benefit from this co-relation has been the

subject of many books and much research work. While it is not important to trade on this basis, it is

imperative to understand this relationship and how the price of futures and options affects the price of the

underlying share.

Just to understand a basic cash-future spread in the simplest form, consider the example below: Reliance Industries (RIL) share is trading at a price of Rs. 891 per share on 26 March 2014. At the same

time, its one month future contract (expiring 24 April 2014) is trading at Rs. 900 (real prices taken as on

26 March 2014).

How you could make money on this trade buy 250 shares (equivalent to 1 lot of RIL) at Rs. 891, and

simultaneously sell the one month future contract (expiring 24 April 2014) at Rs. 900. Hold on to both

positions until expiry (i.e. 24 April 2014) and you will make a risk free profit of Rs. 2,250/- irrespective

of the future movement in Reliances share price. How this works

Purchase price of 250 shares 250 * 891 = 2,22,750/-

Margin amount deposited to sell 1 lot @ Rs. 900 = 35,438/- (margin requirement being 15.75%) Total capital deployed 2,58,188/- On the 24 April 2014, irrespective of where the price of Reliance Industries share settle, you will make a

profit of Rs. 9 per share (i.e. Rs. 9*250=2,250/-).

To understand this with 2 hypothetical prices look at the table below:

Irrespective of where the price settles on expiry, you will make this profit of Rs. 9 per share which you

locked in on the day you entered into this trade.

See this page for a list of option trading strategies.


It sure sounds tempting to get into this cash future arbitrage and it is indeed a rewarding area of work but

keep in mind that while the rates above were true on the day (i.e. 26 March 2014), you do not often find

such major spreads. I can tell you as a few of us at our office are constantly monitoring these spreads.

Secondly, earning Rs. 2,250/- on an investment amount of Rs. 2,58,188/- in a month translates to

approximately 1% return in the month (or 12% per annum). Given that some risk free bonds pay as high

as 8-11%, I dont think there is anything special in executing such complex orders with an aim to make a

similar return.

__________________

So how exactly does the pricing of futures and options affect share prices?

Arbitrageurs are constantly looking for these spreads and every time they get an opportunity to make risk

free profits, they place parallel orders in the two markets (like above). This brings the prices in the two

segments (i.e. derivative and cash segment) closer to each other.

What if? An investor (or institution) with a large fund at its disposal buys certain lots in the futures market and

then starts buying shares in the cash market (i.e. taking delivery). Would then, the arbitrageurs jump in to

take advantage of the large spread which get created due to random buying in the cash market?

. . . and when that happens, would it not drive the future prices higher? Think about it.


Chapter 9

What Does Open Interest in Stock Market Indicate? Many people completely ignore open interest (- in futures & options market) data in stocks, believing it to

be totally irrelevant for someone who trades in the cash segment. No wonder then, that most short term

investors, even those who trade in the cash market suffer losses.

One of my favorite quotes It takes considerable knowledge just to realize the extent of your own ignorance. If you buy and hold shares as a long term investor then may be you do not need to worry about what

happens in the F&O markets. But if you trade in the cash market (both intraday or with a short term time

horizon) then open interest data is as relevant to you as it may be for someone trading option or future

contracts.

I have heard all sorts of explanations in this area so I will tell you what it is not first:

What is NOT Open Interest

It is not the total volume of contracts traded a given day, month or week.

It is not the monetary value of those contracts at the current market price of the share I even

heard someone come up with a weighted average formula across 10 different strike prices to arrive

at some vague equilibrium price for the stock.

It is not the aggregate of open positions across futures and calls and puts, and definitely no

netting or squaring off happens in any calculation.

Open Interest is different across futures and options markets (and further across option lots at

different strike prices) and there is no way to come up with standard open interest equilibrium of

any kind more on this below.

It has nothing to do with any disclosure requirements.

Open Interest: Meaning Open interest is the total number of outstanding contract lots that are held by market participants at any

point in time.

The total number of outstanding contracts will naturally differ across futures and options markets.

Accordingly, you should consider these as 3 separate markets for the purpose of calculating open interest.

Put differently, contracts lots could be lots in futures or options (calls & puts). There is no netting off

between the open interest in call options and put options. Further, open interest in a call option at a given

strike price has nothing to do with the open interest created in the same call option at a different strike

price. Sana Securities Page 24

As underlined above, open interest is the total number of outstanding contracts and not the total value of

the outstanding contracts. Further, it should be differentiated from the concept of a contracts trading

volume. The below example will clarify this.

Time Trading Activity Open Interest Total Volume

A buys 1 option from B who sells 1 option

July 15, 2014 contract 1 1

C buys 5 options from D who sells 5 option


A sells his 1 option and D buys that 1 option


E buys 5 options from C who sells 5 option

July 18, 2014 contracts 5 12

Unlike total volume, open interest will drop if a contract is liquidated.

Open interest will increase by 1 contract when a buyer enters a new long position while the seller is

entering a new short position.

Open interest will decrease by 1 contract if a buyer is closing an old short position and the seller is

closing an old long position. And open interest will stay the same if:

A buyer is entering a new long position while the seller at the same time is closing an old one

A seller is entering into a new short position but the buyer is simultaneously closing an old position.

Relevance of Open Interest Data What does it indicate? 1. Open interest highlights the total number of option contracts that are currently open, i.e. contracts

which have been traded but not yet liquidated by an offsetting trade.


Example: On 17 July 2014, the data for NHPCs call option expiring on 31 July 2014 with a strike price of Rs. 22.50 shows 2, 76,000 call option contracts as open. Does this number refer to options bought or sold? Since there is 1 bought position and 1 sold position for each of these contracts, there are 276,000 bought positions and 276,000 sold.

NHPC Spot Price = Rs. 24.55 (17 July 2014)

Call Option Put Option

Volume Open Interest Strike Price Volume Open Interest

12,000 276,000 22.50 660,000 2,508,000

7,908,000 8,856,000 25.00 336,000 3,048,000

5,556,000 9,696,000 27.50 36,000 1,164,000

780,000 11,532,000 30.00 - 156,000

2. Open interest is a good indicator of the liquidity in the contract. Putting it simply, open interest

is a measure of how much interest is there in the option or future contracts of a particular underlying

stock/ index. Increasing open interest indicates that that fresh money is flowing into the stock /index.

To that extent, higher open interest means higher activity and interest in the particular option or

future. Remember: This does not mean that the underlying stock /index will necessarily rise in

future. It just highlights heightened interest which could point to a bearish or a bullish future trend.

If traders are bearish i.e. they believe that the stock /index price will fall, they may buy put options

or sell call options at a particular strike price, typically below the current market price.

3. Open Interest as a tool to forecast the future price movement of the stock: One of the big

benefits of monitoring open interest data is that it could give valuable guidance about the future

price of the underlying stock. How?

Typically, if the open interest at a certain strike price increases and such strike price is above the current

spot market price of the stock, it indicates a rising trend in the stock, provided that the price of the stock is

also increasing at the same time.


Why? Typically, call buyers hope that the stock price will continue to rise and hence they buy out of money call

options, thus creating a build up at a strike price above the spot price. Similarly a buildup in open interest

at a price below the spot price, coupled with a falling stock price, is led by those who buy put options or

write call options.

But there are many different strike prices? Typically, look at the strike price where buildup is the highest and check if that strike price is above or

below the current spot price of the share.

What about Futures, where there is no strike price? Just like option lots, future lots expire on the last Thursday of each month but there are no strike prices

here. Future contracts are marked to the market price at the close of every trading session and finally

settle on expiry. However, if the premium between the future price and the spot market price increases

beyond a reasonable level, it may indicate that most investors are turning bullish on the future prospects

of the underlying stock /index (i.e. they are willing to buy the future lots at a price much higher than the

current market price and are hoping that the price in future will rise). Of course this has to be coupled

with an increase in the open interest in future market.

By monitoring open interest at the end of each trading day, you can draw the following conclusions:

1. If prices are rising and open interest is also increasing, it indicates that the upward price movement could continue.

2. If prices are rising and open interest is decreasing, it indicates that the upward price movement may

be about to reverse

3. Open interest is also used to determine the market activity Increasing open interest indicates higher trades, which indicates that the market is being actively traded and vice versa.


The relationship between the prevailing price trend and open interest is summarized in the following

table:

Price Open Interest Interpretation

Rising Rising Market is strong

Rising Falling Market is weakening

Falling Rising Market is weak

Falling Falling Market is strengthening Again, there is no thumb rule and it is not that this is how the markets will always behave. If that were the

case, no one would ever lose money in stocks. Unfortunately, for 1 winner there has to be 1 looser in any

form of trading, stocks trading follows this principle equally well. The point to take away is that open

interest has an impact across both, cash and derivative markets, a point often overlooked by those who do

not trade futures and options.


Chapter 10

How Stop loss Orders Work on Hitting Trigger Price Remember what happened when the news of irregular accounting in Satyam Computers hit the market or

more recently when Ranbaxys drugs were banned by the USFDA. The stock prices in such scenarios

correct at such extraordinary rates that nobody gets an opportunity to get out. A stop loss order works as a safety mechanism which gives a trader the ability to restrict his losses in case of an unexpected movement in the price of a security. To explain in the simplest way, a trader taking a position can specify that his position be squared off once

his losses reach a certain level. Amongst other things, one area where this is particularly helpful is to

insure against a sudden rise or decline in the price of an underlying security. Stop loss orders are most useful for day and short term traders, particularly in the F&O markets. This is

because traders typically attempt to buy and sell at smaller price movements. Moreover, if you want to

take many positions at the same time, it is just not possible to follow them all at the same time and it is

advisable to secure yourself by placing stop loss orders at the time of taking a position.

Having a pre-placed stop loss order ensures that you get a preference over market orders placed AFTER YOUR STOP LOSS ORDER TRIGGERS.

Trigger Price in Stop Loss Orders One of the most important aspects of a stop loss order is that it tells the system to cut off your position at

a certain price point. That said, how this works in practice is best explained with an example. Example 1 You buy 10 lots of Nifty @ 7,200 and deposit a margin amount of Rs. 2,90,000/- in your

margin account. Remember a single lot of Nifty consists of 50 units. Now each single point movement in

the Nifty will result in Rs. 500 profit or loss to you depending upon the direction of the movement. If the

Nifty falls to 7,150 points, your (notional) loss would reach Rs. 25,000/ (i.e. 10 lots * 50 * 50). As a

trader you must have some discipline in terms of the amount of loss you are willing to take on a single

trade before you square off that position. In the above scenario, lets say you conclude that once your

margin amount of Rs. 2,90,000 reduces to Rs, 2,60,000 (i.e. a 30,000 rupee loss), you would like to exit

this position. In such a scenario you can place a stop loss order to square of your 10 lots of Nifty @ 7,140.

A Distinction between Stop Loss (SL) and Stop Loss Market (SL-M) Orders There are 2 prices at work in a stop loss order. First is the trigger price and the second is the limit or the

execution price. Trigger price is the price at which a stop loss order gets activated. Execution price is the

price at which you want to square off your position i.e., the price at which you want to exit. To explain

with an example, consider the scenario below:


Example You sell 10 lots of Nifty @ 7200 and deposit a margin amount of Rs. 2,90,000 in your margin account.

Remember a single lot of Nifty consists of 50 units. Now each single point movement in the Nifty will

result in a Rs. 500 profit or loss to you depending upon the direction of the movement. If the Nifty falls to

7,150 points, your (notional) profit would be Rs. 25,000/ (i.e. 10 lots * 50 * 50). However, if the Nifty

rises further and reaches 7,300 points, your (notional) loss would be Rs. 50,000. As a trader you must

have some discipline in terms of the amount of loss you are willing to take on a single trade before you

square off that position. In the above scenario, lets say you conclude that once your margin amount of

Rs. 2,90,000 reduces to Rs, 2,40,000 (i.e. a 50,000 Rs. Loss), you would like to exit this position. In such

a scenario you can place a stop loss order to square of your 10 lots of Nifty @ 7,300 (i.e. 10 lots * 100 *

50).

Stop Loss (SL) and Stop Loss Market (SL-M) Orders

When you place a stop loss order to square of your position @ 7,300, TWO prices are to be kept in mind:

i. Trigger Price The price at which your order will be released to the exchange, i.e. this is the

price at which your order will become active.

ii. Execution Price This is the price at which your order will be executed. Why have 2 prices and what you must not do? Having 2 prices is in line with a regular cash market order. Just like in cash market, here too you have the

option of placing a market order and a limit order. Accordingly, until the market price reaches the

trigger price, your order just sits with your broker.

Once the market price hits the trigger price, your order is released to the exchange:

If you had placed a Stop Loss Market (SL-M) order, your order will be released to the exchange as

a market order and will find a buyer/seller at any available price.

If you had placed a Stop Loss Market (SL) order, your order will be released to the exchange as a

limit order and will get executed only if it finds a buyer / seller at that limit price (i.e. after

triggering it will become a regular limit order).


Something to keep in mind The danger of using SL orders

Remember the concept of equilibrium and how share prices change. Many traders suffer a loss by

wrongly placing an SL order and assuming it to be an SLM order. Look at the image on the left. For this example, assume that you want to sell your lots once the price reaches Rs. 28. Remember that when you place a SL order with a limit price (and not an SLM order), you run the risk that

in case there is no buyer available at your limit price but is available below your specified price, your

order will stay put while the price may decline to any extent. In the image example, assume that the price

reaches Rs. 29 (i.e. trigger price) and your order @ Rs. 28 is released in the market. But after Rs. 28, the

next available buyer is available at Rs. 27. You will sit there with a sell order @ Rs. 28. Similarly in case you place a buy order with a SL at a certain trigger price, it is possible that your order

does not execute for lack of buyer. To be safe always keep a bigger gap between the trigger price and the

execution price. In fact, if you were to look beyond the concept, I see little use for SL orders and always prefer to use an

SLM order. The reason is simple, in case of a sudden movement beyond a point in the price of the

underlying security, I would like to believe that this trade has gone bad, square it up at whatever price and

get out of there.

Move on, there are always better opportunities in the market! Sana Securities Page 31

Chapter 11

Stock Market Operators How Do They Do It? Over the past 200+ years (and perhaps more) there have been many instances of dramatic rise and fall in

the prices of things that are traded. At times this is market driven and prices rise and fall purely based on

demand and supply; while on others, the price is made to behave that way. In the stock market, this is

common place.

Far too many spend their time, energy and brain in trying to defeat the market or shall I say in trying to

defraud others. May be for this reason, many people look at the stock market as a place where only the

well informed insider can make money. While I can assure you that nothing could be further from the

truth, in this post I will stick to talking about how the so called operators go about their jobs.

Operator Syndicates

There are many ways by which stock market operators try to make the share price move as they desire.

Newer techniques to commit fraud are being devised everyday and even the well informed often fall for

them. One of the most common ways in which stock market operator work is by forming a syndicate with

each other and targeting companies where a big portion of promoter holding is pledged.

Promoters of many midcap companies in India have pledged a large portion of their holding which gives these operators a target rich hunting ground.

The objective is to short sell (selling shares without actually holding them i.e. on the promise to buy

them back in future if you are wondering how this happens, this is allowed and legal in almost all stock

markets of the world) a lot of shares very quickly so that the share price falls sharply. More the price falls,

higher the profit they make (since they sell high and can buy back at a lower price hence netting the

difference). Further, a sharp fall in the price of the share does 2 things:


Creates confusion - Investors do not exactly know why the share starts falling but they suspect the

worst and start selling just because everyone seems to sell. No one looks at the business or

fundamentals of the company once this happens. Its a free for all sell fest.

Triggers the margin call When you trade on margin money, you are taking a leveraged exposure. Best explained with an example The trader pledges shares worth Rs 50 and with the Rs 50 margin he so

raises, he buys shares worth Rs 200. Now if the price of his purchased shares declines to Rs 150, he will

have to deposit more shares (or cash) in his margin account, failing which, the lender will most likely sell

the pledged shares to recover the money which he extended. If that happens, the traders entire margin

amount will be wiped out (i.e. a 25% decline in the value of the purchased exposure in this case, will

result in a 100% loss to the trader). Stock market operators try to short sell to the point that the margin

exposure taken by the promoter gets wiped out.

Once this happens, a fresh round of sell-off gets triggered by the financier to recover his money. This

results in a further crash in the stock price. Often (and not always) this sharp decline in stock price has

nothing to do with the fundamentals of a business and is driven purely by the demand-supply pressure

being exerted on the stock.

Please dont take it as me saying that after a sharp crash you should always buy a stock which supposedly has good fundamentals or may have been hit by operators. On the contrary, avoid

companies where the promoters have pledges a huge portion of their holding. A company where the

promoter trades with the money he raises by pledging his own holding is not worth your time.

Visit here for a look at the previous bear cartel attacks and a list of companies which got affected.


Chapter 12

How Share Market is used to Convert Black Money into White

In a country like India with a shadow economy the size of ~ 25% of GDP (total unaccounted money

within India is estimated between Rs. 10 15 lakh crore by various accounts), it is not surprising that

newer methods are constantly being evolved to make use of black money in the real economy. Not only

are they evolving, they are in fact thriving. There is almost a full scale industry where innovative ideas

continue to reward tax evaders. Commercially, any money could be put to investment in the stocks markets. From a legal and compliance

perspective however, the onus will be on you the investor to explain the source of the money and to

pay taxes on it.

How exactly is black money used to invest in shares?

Before I start a discussion about how black money is channelized in the financial system, let me assure

you that with some wise thinking and tax planning, it is in fact easier to invest in a channelized and proper

way. Somehow, either due to a fear of the tax authorities and more because of an ignorance of the tax

system a lot of investors stay away from paying taxes and legalizing their unaccounted money. In any event there are two popular ways in which black money is used to invest in shares of listed companies.

1. Trading in a third party account Typically an intermediary (typically a stock broker or an authorized person) opens an account for the

investor in a third persons name. Usually a company or for smaller accounts in another individuals

name, who falls below the taxable limit for income. This account is then funded with the investors

money. The investor can trade in this account via call and trade facility or even using online banking and

trading facility. Basically, it is no different than giving the investor access to another persons trading

/bank account which is funded 100% by the investors money.


When the investor wishes to withdraw his investments, he instructs the intermediary who gets a small

percentage of commission to facilitate the whole system. In a lot of cases, the intermediaries end up even

managing such money, this could at best be described as a black portfolio management service. Its

rampant to say the least.

2. Converting black money into white Incorporating the so called capital gains company I am not sure if this is plain ignorance on the part of our enforcement agencies or is the greatest story ever

told, but this cannot be go under the radar for so long. The mechanism takes advantage of the fact that

long term capital gains on share purchase transactions (gains on shares held for over year) are tax

exempt.

To explain the mechanism, with an example:

Pool A: many investors pool in their unaccounted money;

Pool B: at the same time, a group of investors with white (tax paid) money come together (or rather,

they are arranged together by an intermediary);

Once the company is listed, the first groups of people to buy stocks are those who want to convert

black money into white. The money they use does not come from pool A. In fact, they use a small

portion of their white money to buy shares at the listing price (say Rs. 10 for each share).

Once, investors from Pool A take positions (i.e. buy shares at the listing price), investors from pool

B start buying thus inflating the stock price. At the same time they receive the unaccounted money

from Pool A. While in practice they buy with the pool A cash, in accounts, they take a loss in their

books and their (tax paid) white money disappears. Effectively they are buying with their white

money to inflate the price of a listed stock and are receiving black money in return. To do this they

are compensated a few percentage points of premium. For example, if they convert their white

money worth Rs. 1 Cr., they will get black money to the tune of Rs. 1.05 Cr.


After 1 year from the date of initial purchase made by Pool A investors (to ensure the benefit of

tax free long term capital gain) as the stock price rises investors from Pool A start selling their

holdings and investors from Pool B suffer huge losses (only on the screen). In return they have

received the Pool A money, greater than the loss they suffer on the screen.

Eventually, the entire lot of Pool A investors cash out and the stock price collapses. So when you see unheard of companies which show extraordinary performance without any improvement

in fundamentals, or companies that continuously hit upper (or lower) circuits, chances are that you are

looking at a manipulated stock. BEWARE: NOT ONLY ARE SUCH COMPANIES WITHOUT ANY FUNDAMENTAL MERIT,

THEY ARE ALSO ILLEGAL. DO NOT JUMP INTO BUYING SHARES IN THEM BECAUSE THEY

HAVE SHOWN UNBELIEVABLE OUT-PERFORMANCE, YOU WILL GET STUCK IN THEM

ONCE THEY START HITTING LOWER CIRCUITS.


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