A stage is a premium hunter. He does not buy or sell securities in the market. He applies for shares in the new issue market just like a genuine investor. He expects that the price of shares will soon increase and the shares can be sold for a premium. A stag, like a bull, always expects a rise in price. When he gets an allotment of his shares, he sells them thereby taking advantage of the rise in price of shares.
The stag may not be able to make any profit if the public response is not good. In that case, he may have to acquire all the shares allotted to him and sell them even at a lower price than he purchased, in which case he meets with a loss.
Advantages
Healthy and scientific speculation is always beneficial. The following are certain useful advantages related to speculation:
1. Speculation increases the liquidity and marketability of securities.
2. It reduces violent fluctuations in prices of securities.
3. It equalizes prices in different markets as the speculators influence the demand and supply of securities in different markets through their buying and selling operations.
4. The speculators bear risks of price changes.
5. Savings and credit resources are mobilized for the financing of enterprise their promotion stage. Through bank loans on securities, the speculators obtain funds and use them to purchase such speculative issues, safeguarding the banks against loss.
Thus, an intelligent and legitimate speculation helps the growth of a healthy capital market. Speculation is healthy and legitimate when it is carried on by persons who are well informed, intelligent, scrupulous, have requisite finance and carry on business strictly according to the rules and regulations of the stock exchange.
Disadvantages
Speculation has the following disadvantages:
(i) It causes violent fluctuation in the prices of securities which will increase the risk of the investors.
(ii) Loss due to unsuccessful speculation tends to discourage saving.
(iii) It sometimes damages the credit-worthiness of the company.
(iv) The management is tempted to use their inside knowledge for personal
Monday, July 27, 2009
Lame Duck.
A lame duck is a bear speculator. He finds it difficult to meet his commitments and struggles like a lame duck. This happens because of the non-availability of securities in the market which he has agreed to sell and at the same time the other party is not willing to postpone the transaction.
Bear
A bear is an operator who anticipates a fall in prices and enters into a contract to sell the shares at current prices, with the hope of buying them back at a future date when the prices fall. If the prices fall as per his expectation, the bear will buy back the shares and thus make a profit. If the price rises on the date of delivery, he will make a loss. Under such a situation, he will have to buy shares at a higher price and sell them at a lower price to fulfil his contract. He may or may not be in actual possession of these shares. The transaction may be either real or notional with settlement of differences only. This is known as short selling.
These speculators are called so because just as a bear keeps its head down, the bear speculator tends to bring down prices through his selling pressure. This is known as bear raid. A market dominated by bear speculators is known as bearish market. In India, bears are popularly known as ‘mandiwala.’
The share market usually shows a decline in prices when the bears operate and sell securities which are not in their possession. When the settlement date comes, the bear will have an option either to close the deal or carry it forward by paying the backwardation charges. If he is able to make a profit on the settlement date, it is called cover. When a bear, whose forecast has not come true, finds it difficult to meet his obligations, it is called bear squeeze. A bull is an optimist, whereas a bear is a pessimist.
These speculators are called so because just as a bear keeps its head down, the bear speculator tends to bring down prices through his selling pressure. This is known as bear raid. A market dominated by bear speculators is known as bearish market. In India, bears are popularly known as ‘mandiwala.’
The share market usually shows a decline in prices when the bears operate and sell securities which are not in their possession. When the settlement date comes, the bear will have an option either to close the deal or carry it forward by paying the backwardation charges. If he is able to make a profit on the settlement date, it is called cover. When a bear, whose forecast has not come true, finds it difficult to meet his obligations, it is called bear squeeze. A bull is an optimist, whereas a bear is a pessimist.
Bull
He is a speculator on the stock exchange who anticipates a rise in prices and enters into a contract to buy the shares at current prices with the hope of selling them at the future date when the prices rise as per his expectation. If the prices rise, he sells and makes a speculative profit. In India, the bull speculator is known as tejiwala. Just as a bull tends to keep his head upward, the bull speculator tends to be on the upper side of the market. He ‘busy long’ and creates a pressure, for prices to rise. This is known as Bull Campaign or ‘rigging the market.’ A market dominated by bulls is known as bullish market.
The usual technique followed by a bull is to buy security without taking actual delivery to sell it in the future when there is a rise in prices. The bull raises the prices in the stock market of those securities in which he deals. He is said to be on the long side of the market. If the price falls, the bull pays the difference at a loss. If the price continues to fall he may either close his deal or carry forward the deal only if he expects a rise in price in the future which will cover the contango charges which will bring him some profit.
The bulls thus influence the market to a very great extent by exercising great pressure in the stock market to raise the price of securities through bulk purchasing of securities.
Example of bull transaction. If a person asks his broker to buy 1000 shares at Rs. 10 per share, for which no immediate payment will be made, and if the price of those shares increases to Rs16 per share, he will instruct his broker to sell the shares on his behalf. The transaction may not be real. The profit made in this transaction is calculated as follows:
Sales price of 1000 shares @ Rs. 16 per share = 16,000
Purchase price of 1000 shares @ Rs. 10 per shares = 10,000
Profit = 6,000
This profit of Rs. 6000 only will be paid on the date of settlement and there will be no delivery of shares.
When a bull fails in his forecast, he is called “disappointed or disrupted bull”. If he has to wait for a long time for the market to turn to his favour, he is called “tired bull’.
The usual technique followed by a bull is to buy security without taking actual delivery to sell it in the future when there is a rise in prices. The bull raises the prices in the stock market of those securities in which he deals. He is said to be on the long side of the market. If the price falls, the bull pays the difference at a loss. If the price continues to fall he may either close his deal or carry forward the deal only if he expects a rise in price in the future which will cover the contango charges which will bring him some profit.
The bulls thus influence the market to a very great extent by exercising great pressure in the stock market to raise the price of securities through bulk purchasing of securities.
Example of bull transaction. If a person asks his broker to buy 1000 shares at Rs. 10 per share, for which no immediate payment will be made, and if the price of those shares increases to Rs16 per share, he will instruct his broker to sell the shares on his behalf. The transaction may not be real. The profit made in this transaction is calculated as follows:
Sales price of 1000 shares @ Rs. 16 per share = 16,000
Purchase price of 1000 shares @ Rs. 10 per shares = 10,000
Profit = 6,000
This profit of Rs. 6000 only will be paid on the date of settlement and there will be no delivery of shares.
When a bull fails in his forecast, he is called “disappointed or disrupted bull”. If he has to wait for a long time for the market to turn to his favour, he is called “tired bull’.
Types of Speculators
In a stock exchange, the speculators are identifies as some zoological characters such as bulls, bears, stags, and lame ducks.
Speculation
Speculation may be defined as buying thing in the hope of selling them later at a higher price, or selling things which the speculator does not possess, hoping to buy them at a lower price. Speculative operations are in the nature of futures or forward trading . It means buying and selling goods for future delivery at a price agreed in advance.
Speculation in Securities
Stock exchange is the place where the listed securities are marketed. The people who buy and sell securities will have different motives, namely, investment motive and speculative motive. There are some persons who buy securities with a view to investing their money for the purpose of getting an income or selling them for getting ready cash. Such persons are called genuine investors. But there are some people who buy securities with a hope of selling them in future at a profit or in the expectation of being able to buy them
Speculation in Securities
Stock exchange is the place where the listed securities are marketed. The people who buy and sell securities will have different motives, namely, investment motive and speculative motive. There are some persons who buy securities with a view to investing their money for the purpose of getting an income or selling them for getting ready cash. Such persons are called genuine investors. But there are some people who buy securities with a hope of selling them in future at a profit or in the expectation of being able to buy them
Odd-Lot Dealers
The standard trading unit for listed stocks is designed as a round lot which is usually a 100 shares. The off-lot dealers are members specilalising in the execution of orders for blocks of shares less than 100. They buy odd-lot which other members wish to sell to their customers and sell off-lots which others wish to buy. The price of the odd-lot is determined by the round lot transactions. The odd-lot dealer earns his profit on the difference between the price at which he busy and sells the securities. He does not depend on commission.
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