Thursday, December 13, 2012

Top 10 Trading Mistakes and It's Precaution

Achieving success in futures trading requires avoiding numerous pitfalls as much, or more, than it does seeking out and executing winning trades. In fact, most professional traders will tell you that it's not any specific trading methodologies that make traders successful, but instead it's the overall rules to which those traders strictly adhere that keep them "in the game" long enough to achieve success.

Following are 10 of the more prevalent mistakes we believe traders make in futures trading.

This list is in no particular order of importance.

1. Failure to have a trading plan in place before a trade is executed. A trader with no specific plan of action in place upon entry into a futures trade does not know, among other things, when or where he or she will exit the trade, or about how much money may be made or lost. Traders with no pre-determined trading plan are flying by the seat of their pants, and that's usually a recipe for a "crash and burn."

2. Inadequate trading assets or improper money management. It does not take a fortune to trade futures markets with success. Traders with less than NRs 50000 in their trading accounts can and do trade futures successfully. And, traders with NRS 500,000 or more in their trading accounts can and do lose it all in a heartbeat. Part of trading success boils down to proper money management and not gunning for those highly risky "home-run" type trades that involve too much trading capital at one time.

3. Expectations that are too high, too soon. Beginning futures traders that expect to quit their "day job" and make a good living trading futures in their first few years of trading are usually disappointed. You don't become a successful doctor or lawyer or business owner in the first couple years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor--and trading futures is no different. Futures trading is not the easy, "get-rich-quick" scheme that a few unsavory characters make it out to be.

4. Failure to use protective stops. Using protective buy stops or sell stops upon entering a trade provide a trader with a good idea of about how much money he or she is risking on that particular trade, should it turn out to be a loser. Protective stops are a good money-management tool, but are not perfect. There are no perfect money-management tools in futures trading.

Sunday, October 14, 2012

Advantages and Disadvantages of Pegging

Advantages of Fixed Exchange Rates

The main arguments advanced in favor of the system of fixed or stable exchange rates are as follows:

1. Promotes International Trade:

Fixed or stable exchange rates ensure certainty about the foreign payments and inspire confidence among the importers and exporters. This helps to promote international trade.

2. Necessary for Small Nations:

Fixed exchange rates are even more essential for the smaller nations like the U.K., Denmark, Belgium, in whose economies foreign trade plays a dominant role. Fluctuating exchange rates will seriously affect the process of economic growth in these economies.

3. Promotes International Investment:

Fixed exchange rates promote international investments. If the exchange rates are fluctuating, the lenders and investors will not be prepared to lend for long-term investments.
4. Removes Speculation:

Fixed exchange rates eliminate the speculative activities in the international transactions. There is no possibility of panic flight of capital from one country to another in the system of fixed exchange rates.

5. Necessary for Small Nations:

Fixed exchange rates arc even more essential for the smaller nations like the U.K., Denmark, Belgium, in whose economies foreign trade plays a dominant role. Fluctuating exchange rates will seriously disturb the process of economic growth of these economies.

6. Necessary for Developing Countries:

Fixed exchanges rates are necessary and desirable for the developing countries for carrying out planned development efforts. Fluctuating rates disturb the smooth process of economic development and restrict the inflow of foreign capital.

7. Suitable for Currency Area:

A fixed or stable exchange rate system is most suitable to a world of currency areas, such as the sterling area. If the exchange rates of the countries in the common currency area are flexible, the fluctuations in the leading country, like England (whose currency dominates), will also disturb the exchange rates of the whole area.

8. Economic Stabilization:

Fixed foreign exchange rate ensures internal economic stabilization and checks unwarranted changes in the prices within the economy. In a system of flexible exchange rates, the liquidity preference is high because the businessmen will like to enjoy wind fall gains from the fluctuating exchange rates. This tends to Increase price and hoarding activities in country.

9. Not Permanently Fixed:

Under the fixed exchange rate system, the exchange rate does not remain fixed or is permanently frozen. Rather the rate is changed at the appropriate time to correct the fundamental disequilibrium in the balance of payments.

10. Other Arguments:

Besides, the fixed exchange rate system is also beneficial on account of the following reasons.

(i) It ensures orderly growth of world's money and capital markets and regularises the international capital movements.

(ii) It ensures smooth functioning of the international monetary system. That is why, IMF has adopted pegged or fixed exchange rate system.

(iii) It encourages multilateral trade through regional cooperation of different countries.

(iv) In modern times when economic transactions and relations among nations have become too vast and complex, it is more useful to follow a fixed exchange rate system.

Disadvantages of Fixed Exchange Rates

The system of fixed exchange rates has been criticized on the following grounds:

1. Outmoded System:

Fixed exchange rate system worked successfully under the favorable conditions of gold standard during 19th century when

(a) the countries permitted the balance of payments to influence the domestic economic policy;

(b) there was coordination of monetary policies of the trading countries;

(c) the central banks primarily aimed at maintaining the external value of the currency in their respective countries; and

(d) the prices were more flexible. Since all these conditions are absent today, the smooth functioning of the fixed exchange rate system is not possible.

2. Discourage Foreign Investment:

Fixed exchange rates are not permanently fixed or rigid. Therefore, such a system discourages long-term foreign investment which is considered available under the really fixed exchange rate system.

3. Monetary Dependence:

Under the fixed exchange rate system, a country is deprived of its monetary independence. It requires a country to pursue a policy of monetary expansion or contraction in order to maintain stability in its rate of exchange.
4. Cost-Price Relationship not Reflected:

The fixed exchange rate system does not reflect the true cost-price relationship between the currencies of the countries. No two countries follow the same economic policies. Therefore the cost-price relationship between them go on changing. If the exchange rate is to reflect the changing cost-price relationship between the countries, it must be flexible.

5. Not a Genuinely Fixed System:

The system of fixed exchange rates provides neither the expectation of permanently stable rates as found in the gold standard system, nor the continuous and sensitive adjustment of a freely fluctuating exchange rate.

6. Difficulties of IMF System:

The system of fixed or pegged exchange rates, as followed by the International Monetary Fund (IMF), is in reality a system of managed flexibility.

It involves certain difficulties, such as deciding as to

(a) when to change the external value of the currency,

(b) what should be acceptable criteria for devaluation; and

(c) how much devaluation is needed to reestablish equilibrium in the balance of payments of the devaluing country.

Sunday, September 9, 2012

Reasons behind increasing price of Gold

Gold is most malleable and ductile of all metals and pure gold has yellow color. Gold is the second investment alternative after US Dollar. Gold price is in  increasing trend and let us find the reasons behind it. Here are the reasons..

1) Increases in Demand of the Gold
2) Weakness in US Dollar

Wednesday, August 15, 2012

Factors affecting Gold Price
Contrary to common beliefs gold prices move up and down just like any other commodity. Since Gold can act as an inflation hedge and a safe escapement during times of economic uncertainties and slowdowns it’s crucial to understand the factors affecting gold prices so that you don’t take wrong investing decisions.

Gold Prices and the US dollar

Gold is quotes in US dollar, this means that those buying and selling Gold must do it in US dollar and therefore when the US dollar goes up it means that buying dollar has became more expensive and this in turn makes buying gold more expensive. That’s why gold goes down when the US dollar goes up and vice versa.

Gold prices and Oil

When Oil goes up the global economy slows down which threatens corporate profits and makes gold a higher yielding investment. Thus when Oil goes up gold prices go up and vice versa.

Wednesday, July 4, 2012

Commodity Queries from visitors and it's answers

1) What is a "Commodity"?

Commodity is a product having commercial value that can be produced, bought, sold and consumed. It is normally in a basic raw unprocessed state. But products derived from Primary sector and structured products are also traded at exchanges in Nepal. The list includes metals like Gold, Silver, Copper and non metals like Sugar, Coffee, Soya, Crude Oils etc. 

2) What are the different types of participants in Commodity markets?

Broadly, the participants can be classified as Hedgers, Arbitragers and Speculators. In other words, manufacturers, traders, farmers, exporters and investors are all participating in this market.

3) How is trading done in the commodity exchanges?

Like the stock market online trading system, commodity exchanges are also typically on the online trading system. It is an order-driven, transparent trading platform, which is reachable to the various participants through the Internet,

4) What is the meaning of "Futures Contract"?   

Futures contract is an agreement between two parties to buy or sell a specified quantity and defined quality of a commodity at a certain time in future at a price agreed upon at the time of entering into the contract. This is typically traded at regulated commodity exchanges.

5) What is the difference between spot market and futures market?

In a spot market commodities are physically bought or sold usually on a negotiable basis resulting in delivery. While in the futures markets, commodities can be bought or sold irrespective of the physical possession of underlying commodity. The futures market trades in standardized contractual agreements of the underlying asset with specific quality, quantity and mode of delivery whose settlement is guaranteed by regulated commodity exchanges.

6) What is meant by Hedging?

Hedging means taking a position in the futures or option market that is opposite to a position in the physical market. It reduces or limits risks associated with unpredictable changes in price.. The objective behind this mechanism is to offset a loss in one market with a gain in another.

List of Commodity Exchange in Nepal

Following are the list of Commodity Exchange in Nepal
1) Commodity and Metal Exchange Nepal Limited (COMEN)
2) Mercantile Exchange Nepal Limited(MEX)

3) Nepal Derivative Exchange Limited(NDEX)

What is Commodity Exchange?

Like stock exchanges in capital markets, a commodity exchange is an association or a company or any other body corporate that is organizing futures trading in commodities. The new generation national level exchanges have been set up in a corporatised / demutualised environment. There are seven  nationally recognized commodity exchanges in Nepal.

Sunday, June 24, 2012

Classification of Derivatives Market

Derivative markets can broadly be classified  as
  1. Commodity Derivative Market
  2. Financial Derivative Market
As the name suggest, commodity derivatives markets trade contracts for
which the underlying asset is a commodity. It can be an agricultural commodity like wheat,
soybeans, rapeseed, cotton, etc or precious metals like gold, silver, etc.
Financial derivatives markets trade contracts that have a financial asset or variable as the underlying. The more
popular financial derivatives are those which have equity, interest rates and exchange rates as the underlying. The most commonly used derivatives contracts are forwards, futures and options
which we shall discuss in detail later.

Participants of Derivatives Market

Derivative contracts are of different types. The most common ones are forwards, futures, options
and swaps. Participants who trade in the derivatives market can be classified  under the following
three broad categories – hedgers, speculators, and arbitragers.
1. Hedgers: The farmer's example that we discussed about was a case of hedging. Hedgers face risk
associated with the price of an asset. They use the futures or options markets to reduce or eliminate
this risk.
2. Speculators: Speculators are participants who wish to bet on future movements in the price of an
asset. Futures and options contracts can give them leverage; that is, by putting in small amounts of
money upfront, they can take large positions on the market. As a result of this leveraged speculative
position, they increase the potential for large gains as well as large losses.

Saturday, June 23, 2012

Introduction of Derivatives

The origin of derivatives can be traced back to the need of farmers to protect themselves against
fluctuation in the price of their crop. From the the time it was sown to the time it was ready
for harvest, farmers would face price uncertainty. Through the use of simple derivative products,
it was possible for the farmer to partially or fully transfer price risks by locking–in asset prices.
These were simple contracts developed to meet the needs of farmers and were basically a means
of reducing risk.
A farmer who sowed his crop in June faced uncertainty over the price he would receive for his
harvest in September. In years of scarcity, he would probably obtain attractive prices. However,
during times of oversupply, he would have to dispose off his harvest at a very low price. Clearly
this meant that the farmer and his family were exposed to a high risk of price uncertainty.
On the other hand, a merchant with an ongoing requirement of grains too would face a price
risk – that of having to pay exorbitant prices during dearth, although favourable prices could be
obtained during periods of oversupply. Under such circumstances, it clearly made sense for the
farmer and the merchant to come together and enter into a contract whereby the price of the grain
to be delivered in September could be decided earlier. What they would then negotiate happened
to be a futures–type contract, which would enable both parties to eliminate the price risk.

A derivative is a product whose value is derived from the value of one or more underlying
variables or assets in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. In our earlier discussion, we saw that wheat farmers may wish to sell their
harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction
is an example of a derivative. The price of this derivative is driven by the spot price of wheat
which is the “underlying” in this case

Wednesday, June 20, 2012

List of ''A'' Commercial Banks in Nepal

Name of Commercial Bank
Year of Est.
Head Office
Nepal Bank Ltd.

Dharmapath Kathmandu
Rastriya Banijya Bank
Agriculture Development Bank
Ram sha Path Kathmandu
Nabil Bank Ltd
Nabil House, Kamaladi, Kathmandu
Nepal Investment Bank
Durbar Marga Kathmandu
Standard Chartered Bank
Baneshor, KTM
Himalayan Bank
Tridevi Marg, Thamel
Nepal SBI Bank
Hattishar, Kathmandu
Nepal Bangladesh Bank
New Baneswor, Kathmandu
Everest Bank Ltd
Baneshwor Main Branch
Bank of Kathmandu
Kamal Pokhari,kathmandu
Nepal Credit Commerce Bank Ltd
NB Building, Bagbazar, Kathmandu,
Lumbini Bank Ltd
Durbar Marg, Kathmandu, Nepal.
Machapuchre Bank
Naya Bazar, Pokhara
Kumari Bank
Putali Sadak, Kathmandu
Laxmi Bank
Hattisar, Kathmandu
Siddhartha Bank
Hatissar, KamaladiKathmandu
IME Global Bank
Panipokhari Kathmandu
Citizens Bank International
Kamaladi Kathmandu
Prime Commercial Bank
Bira Complex, New Road
Sunrise Bank
Gairidhara Crossing, Kathmandu, Nepal
Grand Bank Nepal Ltd
Kathmandu Plaza, First Floor, Kamaladi
NMB Bank
Babarmahal, Kathmandu
Kist Bank
KIST Building ,Anamnagar, Kathmandu
Janata Bank
New Baneshor, Kathmandu
Mega Bank
Mega Mahal, Kantipath, Nepal
Commerz and Trust Bank
Tindhara Road, Kamaladi, Kathmandu.
Civil Bank
Classic Complex, Tindhara Road,
Kamaladi, Kathmandu-31
Century Bank
Putalisadak, Kathmandu,
Sanima Bank
Naxal, Kathmandu
NIC Asia
Kamaladi, Kathmandu


1) What is Investment?
The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment. Investment of one investor is the income of another.

2) Why should one invest?
One needs to invest to:
§ earn return on your idle resources
§ generate a specified sum of money for a specific goal in life
§ make a provision for an uncertain future
3)When to start Investing?
The sooner one starts investing the better. By investing early you allow your investments more time to grow, whereby the concept of compounding (as we shall see later) increases your income, by accumulating the principal and the interest or dividend earned on it, year after year. The three golden rules
for all investors are:
§ Invest early
§ Invest regularly
§ Invest for long term and not short term

4) What is meant by Interest?
When we borrow money, we are expected to pay for using it – this is known as Interest. Interest is an amount charged to the borrower for the privilege of using the lender’s money. Interest is usually calculated as a percentage of the principal balance (the amount of money borrowed). The percentage rate
may be fixed for the life of the loan, or it may be variable, depending on the terms of the loan.
5) What factors determine interest rates?
When we talk of interest rates, there are different types of interest rates -
rates that banks offer to their depositors, rates that they lend to their
borrowers, the rate at which the Government borrows
The factors which govern these interest rates are mostly economy related
and are commonly referred to as macroeconomic factors. Some of these
factors are:
§ Demand for money
§ Level of Government borrowings
§ Supply of money
§ Inflation rate
§ The Central Bank of Nepal the Government policies which
determine some of the variables mentioned above

6) What are various options available for investment?
One may invest in:
§ Physical assets like real estate, gold/jewellery, commodities etc.
§ Financial assets such as fixed deposits with banks, small saving instruments with post offices, insurance/provident/pension fund etc. or securities market related instruments like shares, bonds,
debentures, derivatives etc

Some Economic Indicator

The following is an economic indicator glossary. It’s important for our traders to know and understand market terminology. Comprehension is vital when interpreting Fundamental news and analysis.
Auto Sales
The number of cars sold during a particular ten-day period. The timeliness of this indicator (released three days after the 10-day period) makes this the most current piece of US economic data. The size of the item in question and the timeliness of the release allow auto sales to be a useful leading indicator of retail sales and personal consumption expenditures data.
Balance of Payments
Complete summary of a nation’s economic transactions and the rest of the world including merchandise, services, financial assets and tourism. The balance of payments is separated into two main accounts: the current account and the capital account.
Balance of Trade (Merchandise Trade Balance)
The difference between a nation’s exports and imports of merchandise. A positive balance of trade, or a surplus, occurs when a county’s exports exceed its imports. A negative balance of trade, or a deficit, occurs when imports surpass exports. Rising exports add to GDP while falling imports are subtracted from it. The US merchandise trade balance has been in a deficit since the mid-1970s. Rising deficits can be reflective of increased consumption, which can be a sign of a strengthening economy.
Beige Book Fed Survey
Officially known as the Survey on Current Economic Conditions, the Beige Book, is published eight times per year by a Federal Reserve Bank, containing anecdotal information on current economic and business conditions in its District through reports from Bank and Branch directors, and interviews with key business contacts, economists, market experts, and other sources. The Beige Book highlights the activity information by District and sector. The survey normally covers a period of about 4-weeks in duration, and is released two weeks prior to each FOMC meeting, which is also held eight times per year. While being deemed by some as a lagging report, the Beige Book has usually served as a helpful indicator to FOMC policy decisions on monetary policy.