Author: marketfeed Team

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Editorial

Natural Gas Trading: A Beginner’s Guide

natural gas trading in India | marketfeed

Welcome, traders! Today, we dive into one of the most exciting and dynamic commodities in the market: natural gas. It’s one of the most popular commodities among traders due to its high liquidity and volatility. Whether you’re a seasoned trader or just starting out, this guide will walk you through everything you need to know about trading natural gas effectively.

Why Trade Natural Gas?

Natural gas is a preferred asset for traders because of two key reasons:

1. High Liquidity – Liquidity refers to how easily an asset can be bought or sold in the market without affecting its price. High liquidity in natural gas means that traders can enter and exit positions quickly, which is crucial for intraday trading strategies. Both its major and mini contracts attract a large number of traders, ensuring ease of entry and exit.

2. High Volatility – The price of natural gas fluctuates significantly, providing opportunities for profitable trades.

    Moreover, commodity trading allows flexibility as the market remains open from 5:00 PM to 11:30 PM, making it ideal for traders who have day jobs or other commitments. You could use this window to maximise your trading potential.

    How to Trade Natural Gas?

    Unlike gold or silver, natural gas trading is exclusively conducted through derivatives, specifically futures and options (F&O). It’s strictly limited to MCX derivative contracts. This means understanding the basics of these financial instruments is essential for anyone looking to trade natural gas.

    Types of Natural Gas Contracts

    • Natural Gas Major Contract – Designed for institutional traders with larger capital and high margin requirements.
    • Natural Gas Mini Contract – Suitable for retail traders who wish to take smaller positions with lower margin requirements.

    The major contract has a trading unit of 1,250 Metric Million British Thermal Units (mmBTU), while the mini contract has a trading unit of 1/5th the major contract size.

    Each contract has a specific expiry date that traders must be aware of to avoid delivery complexities. For instance, if the current contract expires in a few days, it’s advisable to trade the next month’s contract instead.

    Capital Requirements for Natural Gas Trading

    The margin required to trade one lot of natural gas major contract is approximately ₹1.65 lakh. It’s about ₹32,584 for the mini contract— making it appealing to retail traders.

    How to Do Natural Gas Trading on a Broker Terminal?

    1. Search for Natural Gas Futures: Type in “Natural Gas” in your broker’s search bar and select MCX contracts.

    2. Choose the Right Contract: Select the contract with an expiration date that provides enough time for smooth trading. As mentioned earlier, the mini contract is ideal for retail traders.

    3. Analyze Price Trends: Use technical analysis to inform your trading decisions. This includes analyzing price charts, identifying trends, and applying indicators to predict future price movements. Price action strategies work particularly well in the natural gas market due to its volatility. [You can use the MCX Energy Index to track natural gas price movements].

    4. Consider Capital Requirements: Ensure you have the necessary margin before placing trades.

    5. Use Limit Orders: Given the low liquidity in some natural gas options, it’s advisable to place limit orders rather than market orders. This approach helps avoid significant slippage and protects your capital.

    Important Pointers:

    For options trading in natural gas contracts:

    • At-the-money contracts are recommended due to better liquidity.
    • Out-of-the-money contracts often suffer from low liquidity and high slippage.
    • Option buyers need less capital (based on premium x lot size), but liquidity is a concern.

      Factors Affecting Natural Gas Prices

      1. Supply and Demand Dynamics: High inventory levels of natural gas can lead to lower prices, while increased demand (especially during cold winters) can drive prices up. Monitoring inventory reports and production data is crucial for anticipating price movements.

      2. Weather Conditions: In colder climates, natural gas is used for heating, leading to increased consumption during winter months. Keeping an eye on weather forecasts in major markets like the U.S. and Europe can provide insights into potential price fluctuations.

      3. The Crude Oil Connection: As an energy commodity, natural gas prices are also tied to crude oil prices. Movements in crude oil can directly impact natural gas, so it’s essential to track crude oil market trends (including OPEC decisions) as part of your trading strategy.

      4. Geopolitical Factors: Events such as conflicts or trade disputes can disrupt supply chains and affect prices. For instance, the Russia-Ukraine conflict has had significant implications for European natural gas supplies, leading to increased volatility in the market.

      Who Should Go For Natural Gas Trading?

      Natural gas trading is ideal for:

      • Traders comfortable with volatility – Price fluctuations can be both an opportunity and a risk.
      • Those with sufficient capital – It’s important to have a proper risk management strategy.
      • Experienced traders in derivatives – Beginners should first learn futures and options trading before venturing into commodities.

      Conclusion

      Natural gas trading offers excellent opportunities due to its volatility and liquidity, but it also requires sound market knowledge and strategy. Before you start, ensure you understand futures and options, choose the right contract, manage risks effectively, and stay updated with market trends.

      By understanding the fundamentals of trading contracts, monitoring market conditions, and employing effective strategies, you can position yourself for success in this market.

      Are you ready to trade natural gas? Start with thorough research and practice before deploying your hard-earned money!

      Watch: Intraday Favourite! Natural Gas Trading after 5 PM! | marketfeed

      Categories
      Algo Trading

      An Overview on SEBI’s New Rules on Algo Trading for Retail Investors

      SEBI's new rules on algo trading | marketfeed

      Algo trading has transformed the financial markets (stocks, currencies, commodities, derivatives, etc.), enabling faster execution, data-driven decision-making, and improved efficiency.  It’s the method of executing orders using automated or pre-programmed trading instructions. After recognising the risks and challenges faced by retail investors, the Securities and Exchange Board of India (SEBI) has introduced a regulatory framework to ensure safer participation in algo trading.

      Effective from August 1, 2025, these new measures aim to enhance transparency, mitigate risks, and promote accountability in the algo trading space in India. In this article, we break down what these changes mean for retail traders and market participants.

      Why Has SEBI Introduced These Regulations?

      With the growing adoption of algo trading, SEBI aims to address concerns regarding market manipulation, security vulnerabilities, and lack of investor awareness. The key objectives of the latest circular are:

      • Protect Retail Investors: Ensure that individuals who participate in algo trading understand the risks involved.
      • Enhance Transparency: Provide clear guidelines on approval, monitoring, and risk management of trading algorithms.
      • Prevent Market Manipulation: Implement safeguards to detect and prevent unfair trading practices.
      • Establish Accountability: Mandate compliance measures for brokers and algo providers to maintain ethical and fair trading environments.

      Key Measures Introduced by SEBI in the Latest Circular

      1. Empanelment of Algo Trading Providers

      To ensure credibility, SEBI has mandated that all algo trading providers must be empanelled with stock exchanges before brokers can onboard them. This prevents unverified or sketchy service providers/companies from offering algo trading solutions to retail investors.

      2. Approval Process for Algorithms

      Brokers must obtain prior approval from stock exchanges for each algorithm they wish to offer to retail investors. Additionally, any modifications to approved algorithms also require pre-approval from the exchange. This ensures that all trading strategies comply with SEBI’s guidelines.

      3. Monitoring and Risk Management

      Brokers are responsible for monitoring investor grievances and ensuring compliance with anti-manipulation measures. They must:

      • Implement strong risk management practices.
      • Maintain oversight of algo trading activities.
      • Report any unusual patterns to SEBI.

      4. API Access Restrictions

      To prevent unauthorised access, SEBI has banned open APIs. [In the context of algo trading, open APIs enable traders and third-party applications to connect directly to a broker’s trading platform, execute trades, and access market data]. Instead, access will be granted only through unique vendor-client setups, ensuring proper identification and traceability of algo trades.

      5. Registration Requirements for Self-Developed Algorithms

      Retail investors who develop their own algorithms must register with stock exchanges through their brokers if their trading activity exceeds a specified order-per-second threshold. These self-developed algorithms can only be used for personal accounts, including those of immediate family members.

      6. Regulations for Black Box Algorithms

      Algorithms that do not disclose their underlying logic, known as black box algorithms, must register as Research Analysts with SEBI. They must:

      • Maintain detailed research reports.
      • Undergo re-registration if there are significant modifications to their trading logic.

      7. Unique Identification for Algo Orders

      Each algo order must be tagged with a unique identifier (an “algo ID”) provided by the exchange. This will help establish an audit trail, enhancing transparency and accountability in trading activities.

      8. Standard Operating Procedures (SOPs)

      Stock exchanges will issue SOPs for testing, monitoring, and simulating algo trading. This includes establishing a “kill switch” mechanism, allowing exchanges to disable specific algo IDs in case of irregularities.

      9. Transparency in Charges

      Brokers and algo providers must clearly disclose all charges related to algorithmic trading. This includes:

      • Subscription fees for algo trading strategies.
      • Brokerage costs associated with executing algo trades.

      When Will These Regulations Be Implemented?

      SEBI has set the following timeline for the new framework:

      • April 1, 2025: Brokers’ Industry Standards Forum will formulate detailed implementation standards.
      • August 1, 2025: Full implementation of the new regulatory framework.

      How Will This Impact Retail Traders and Market Participants?

      Retail Investors:

      • Increased security and transparency in algo trading.
      • Better education and awareness through mandated investor education programs.
      • More robust oversight to prevent fraud and manipulation.

      Brokers:

      • Need to enhance compliance with SEBI’s risk management requirements.
      • Must obtain approvals for every algorithm they offer to clients.
      • Implement strict monitoring and reporting mechanisms.

      Algo Providers:

      • Must be registered and approved by stock exchanges.
      • Ensure algorithms meet predefined risk and compliance standards.
      • Maintain detailed logs and records for transparency.

      Conclusion

      SEBI’s new regulatory measures aim to strike a balance between innovation and investor protection in algo trading. By ensuring a structured and transparent framework, SEBI seeks to democratise access to automated/algo trading while minimising potential risks.

      As a retail trader, staying informed about these regulations is crucial to navigating the evolving algo trading landscape. Whether you’re developing your own trading algorithm or using broker-provided strategies, understanding these compliance requirements will help you trade with confidence and security.

      For further details, refer to SEBI’s official circular on the new algo trading regulations.

      Also Read: Is Algo Trading Legal in India Now?

      Categories
      Editorial

      Union Budget 2025-26: Key Highlights and New Tax Slabs Explained

      union budget 2025-26 | marketfeed

      Finance Minister Smt. Nirmala Sitharaman presented the Union Budget for the financial year 2025-26 in Parliament on Feb 1, 2025. The budget recognises agriculture, Micro, Small and Medium Enterprises (MSMEs), investment, and exports as the primary drivers for economic growth! Let us take a look at some of the key highlights and themes from the Budget presentation:

      1. Agriculture & Rural Development: Boosting Productivity & Farmer Welfare

      The government has committed ₹1.52 lakh crore to modernising agriculture and improving rural development. Key initiatives include:

      • PM Dhan Dhanya Krishi Yojana: Aims to improve crop diversification, irrigation, and storage in 100 low-productivity districts, benefiting 1.7 crore farmers.
      • Kisan Credit Card Expansion: Loan limits have been increased to ₹5 lakh, providing better financial access to farmers.
      • Self-Sufficiency in Pulses: India plans to achieve self-reliance in pulses within six years.
      • Cotton Farmers’ Support: A dedicated cotton farming mission aims to improve yields and incomes.
      • Makhana Board for Bihar: A special board will promote Makhana production and marketing in Bihar.

      2. Healthcare: Strengthening Accessibility & Affordability

      The healthcare sector gets a ₹98,311 crore allocation, focusing on infrastructure and affordability. Key developments include:

      • Ayushman Bharat Expansion: ₹4,200 crore allocated to extend health insurance coverage for vulnerable populations.
      • Cancer Care Expansion: 200 new daycare cancer centers to be set up in district hospitals over the next three years.
      • Medical Education: 10,000 new medical seats next year, with a target of 75,000 seats over five years.
      • Gig Workers’ Healthcare: 1 crore gig workers to receive health insurance coverage.

      3. Defense: Modernisation & Indigenous Development

      The defense budget rises to ₹6.81 lakh crore, with a focus on self-reliance and modernisation. Key announcements:

      • 75% of capital procurement will be from domestic manufacturers, boosting the ‘Make in India’ initiative.
      • Advanced Combat Aircraft & Submarines: More funding for Project P75(I) submarines and Advanced Medium Combat Aircraft (AMCA) development.
      • Procurement Boost: Acquisition of six submarines to strengthen India’s naval capabilities.

      4. Infrastructure: Enhancing Connectivity & Sustainability

      The government has allocated ₹12 lakh crore for infrastructure development, with a focus on roads, highways, railways, and airports.

      • Maritime Sector Development: ₹25,000 crore allocated for shipbuilding and port infrastructure.
      • Greenfield Airports in Bihar: Improving regional connectivity.
      • UDAN Scheme Expansion: 120 new domestic destinations added to strengthen regional air travel.

      5. Education: Enhancing Access & Skill Development

      The education sector sees a strong push for AI, research, and skill development. Key highlights:

      • ₹500 crore for AI Research: Centres of Excellence to be established for AI-based learning.
      • Expansion of IITs & Medical Colleges: More seats at IITs and 75,000 medical seats over five years.
      • Atal Tinkering Labs: 50,000 new labs in government schools to encourage innovation.
      • Skill Development Initiatives: New courses will equip graduates with industry-relevant skills.

      6. Renewable Energy & Sustainability

      India continues its push for clean energy with a ₹3 lakh crore allocation:

      • Solar & Wind Energy: Increased funding for solar, wind, and green hydrogen projects.
      • Net-Zero by 2070: Sustainability measures align with India’s long-term climate commitments.
      • ₹1 lakh crore Urban Sustainability Fund: Supports green city planning and waste management.

      7. Major Direct Tax Reforms in Union Budget 2025-26!

      There’s a big relief: No tax on income up to ₹12 lakh in the new tax regime!

      📌 Here’s the Revised Tax Slabs (New Regime):

      Income RangeTax Rate
      Up to ₹4 lakhNil
      ₹4 lakh – ₹8 lakh5%
      ₹8 lakh – ₹12 lakh10%
      ₹12 lakh – ₹16 lakh15%
      ₹16 lakh – ₹20 lakh20%
      ₹20 lakh – ₹24 lakh25%
      Above ₹24 lakh30%
      (The Standard Deduction remains at ₹75,000)

      Now the tax slabs may show a 10% tax for incomes up to ₹12 lakh, but Section 87A of the Income Tax Act offers a rebate that can wipe out your tax liability—if your taxable income stays within the limit. [A tax rebate is like a discount on your taxes. If your total taxable income is within a certain limit, the government reduces or cancels your tax amount.]

      Let’s look at a simple example: If you’re a salaried employee earning ₹12.75 lakh, the ₹75,000 standard deduction brings your taxable income down to ₹12 lakh. That means zero tax (excluding cess), thanks to the rebate!

      But the moment your taxable income exceeds ₹12 lakh—say, by earning an extra ₹1 lakh—the rebate disappears, and you pay full taxes.

      Also, capital gains (from stocks or real estate) aren’t eligible for this rebate, even if your total income is below ₹12 lakh.

      So plan your income sources wisely to maximise tax savings!

      Other Updates:

      • The capital gains tax rates and holding periods remain unchanged for assets like stocks, bonds, debt mutual funds, unlisted shares, and real estate in Budget 2025. Currently, the Short-Term Capital Gains (STCG) tax stands at 20%, while the Long-Term Capital Gains (LTCG) tax is set at 12.5%.
      • There’s an increase in the Tax Deducted at Source (TDS) threshold on rent from ₹2.4 lakh to ₹6 lakh to ease compliance.
      • Senior citizens can now earn up to ₹1 lakh in interest income from bank deposits and other sources without facing TDS deductions. Previously, this limit was just ₹50,000.

      Also Read: Income Tax Structure for Stock Market Investors & Traders

      The Way Ahead

      The Union Budget 2025-26 lays a roadmap for inclusive growth, modernization, and economic resilience. From agriculture and healthcare to defense, education, and infrastructure, key sectors receive significant investments.

      This budget aims to drive economic expansion and long-term sustainability through strong tax incentives, employment initiatives, and renewable energy investments. People would have more money to spend and save due to lower direct taxes. Increased spending drives up Goods & Service Tax (GST) collections, thereby boosting government revenues.

      On the other hand, businesses haven’t received any tax cuts. But with higher demand and sales, their profits could grow, leading to higher corporate tax payments. The government expects to collect ₹10.8 lakh crore in corporate taxes—10% more than its FY25 estimate.

      Now, let’s look forward to how these plans take shape in the coming months! 🚀

      Categories
      Editorial

      A Simple Guide to Trading Gold and Silver on MCX

      gold and silver on MCX | marketfeed

      Ever wondered why so many traders are drawn to gold and silver trading? Well, it’s not just about the shine! These precious metals are incredibly popular in the commodity market, thanks to their high liquidity and the big players (like jewellers and institutions) who actively trade them. In this article, we dive into everything you need to know about trading gold, silver, and bullion in the Multi Commodity Exchange of India (MCX).

      How to Start Trading Gold and Silver?

      One of the advantages of commodity trading is the ability to trade after regular market hours, from 5 PM to 11:30 PM in the Indian market. You can start trading through regulated brokers such as:

      • Zerodha
      • Upstox
      • Fyers
      • IIFL Securities

      These established brokers provide reliable platforms for MCX trading and ensure proper regulatory compliance. When selecting contracts through your broker’s terminal, always choose MCX contracts over NSE ones due to higher liquidity in the MCX segment.

      Understanding Gold Trading in MCX

      Gold trading in MCX is exclusively done through derivatives contracts – either futures or options. There are four different categories of gold contracts available:

      1. Gold (Main Contract): Trading unit of 1 kg
      2. Gold Mini: Trading unit of 100 grams
      3. Gold Guinea: Trading unit of 8 grams
      4. Gold Petal: Trading unit of 1 gram

        Each of these categories is tailored for different types of traders based on the trading unit, margin requirements, and liquidity. Let’s explore them in detail.

        Capital Requirements for Gold Trading

        Each category requires different margin amounts:

        • Gold (Main): Approximately ₹8 lakhs per lot
        • Gold Mini: Around ₹79,000 per lot
        • Gold Guinea: About ₹6,436 per lot
        • Gold Petal: Less than ₹800 per lot

        While gold mini and gold futures dominate in terms of liquidity, gold guinea and gold petal contracts often experience low participation. If you’re a beginner, you could focus on gold mini contracts for better price action and stability.

        Understanding Silver Trading in MCX

        Similar to gold, silver trading in MCX is available through derivatives contracts with three categories:

        1. Silver (Main): Trading unit of 30 kg
        2. Silver Mini: Trading unit of 5 kg
        3. Silver Micro: Trading unit of 1 kg

          Capital Requirements for Silver Trading

          The margin requirements vary significantly across categories:

          • Silver Main: Approximately ₹5.27 lakhs
          • Silver Mini: Around ₹87,000
          • Silver Micro: About ₹17,000

          Unlike gold’s smaller contracts, Silver Micro maintains decent liquidity, making it a viable option for traders with smaller capital.

          Understanding Bullion Index

          The MCX Bullion Index (BULLDEX) combines gold and silver futures contracts in a ratio of 63.7% gold to 36.3% silver. While this might seem like an interesting trading instrument, it’s important to note that BULLDEX suffers from extremely low liquidity and is not recommended for active trading.

          Price Impact and PnL Calculations

          Understanding price impact on profit and loss (PnL) is crucial:

          For Gold:

          • Main Contract: ₹100 PnL per ₹1 price movement
          • Gold Mini: ₹10 PnL per ₹1 price movement

          For Silver:

          • Main Contract: ₹30 PnL per ₹1 price movement
          • Silver Mini: ₹5 PnL per ₹1 price movement
          • Silver Micro: ₹1 PnL per ₹1 price movement

          Key Factors Affecting Gold and Silver Prices

          Several factors influence precious metal prices:

          1. Global Economic Conditions: Gold typically performs well during economic uncertainty as a safe-haven asset

          2. Interest Rates and Inflation: Higher inflation often drives increased demand for gold

          3. Currency Fluctuations: USD-INR exchange rates directly impact Indian market prices

          4. Geopolitical Events: Global uncertainty tends to boost gold prices

          5. Supply and Demand Dynamics: Particularly important for silver, given its industrial applications

            The Gold-to-Silver Ratio Trading Strategy

            The gold-to-silver ratio is a valuable tool for positional trading. When the ratio exceeds 80, it suggests gold is overvalued relative to silver, indicating potential outperformance by silver in bullish markets. Conversely, a ratio below 60 suggests silver is overvalued, pointing to potential outperformance by gold.

            Important Trading Considerations

            1. Contract Expiry:

            • Gold and Silver main contracts expire on the 5th of every alternate month
            • Mini and micro contracts typically expire on the last trading day of the month

            2. Risk Management:

            • Always use proper capital allocation
            • Never trade with 100% of available capital
            • Maintain reserves for potential drawdowns

            3. Technical Analysis:

            • Price action and technical analysis work well in precious metals
            • Support and resistance levels are generally well-respected
            • Monitor global gold and silver ETF flows for additional insights

              Trading precious metals can be profitable with proper understanding and risk management. Start with more liquid contracts like Gold Mini or Silver Mini, and always stay informed about global economic conditions affecting these markets.

              Watch: Gold & Silver Trading after 5 PM! | Commodity Series #3 | marketfeed

              Categories
              Editorial

              A Simple Guide to Crude Oil Trading in India

              trading crude oil | marketfeed

              Crude oil, often referred to as the “mother of all commodities,” plays a significant role in global trade. From powering vehicles to forming the raw material for plastics and pharmaceuticals, crude oil impacts nearly every aspect of our lives. In this article, we explore the fundamentals of crude oil trading in India! We dive into why it’s a compelling market, the capital required, and the critical data points that impact the pricing of crude oil.

              Why Trade Crude Oil?

              One of the most attractive features of crude oil trading is the extended trading hours, making it ideal for individuals who work during regular market hours (9:15 AM to 3:30 PM). With trading sessions running from 5:00 PM to 11:30 PM in India, crude oil offers flexibility for traders constrained by daytime work commitments.

              Crude oil also exhibits high volatility, creating opportunities for directional trades. Its global significance ensures consistent demand and its pricing can act as an indicator for other commodities and even stocks.

              Crude Oil Benchmarks

              Crude oil prices are determined by various benchmarks based on origin and quality. The three major benchmarks are:

              1. West Texas Intermediate (WTI): Sourced primarily from the United States, this is the most widely traded crude oil benchmark.

              2. Brent Crude: Extracted from the North Sea region, this benchmark serves as a reference for European and global markets.

              3. Dubai Crude: Predominantly produced in the GCC (Gulf Cooperation Council) countries, it represents the Middle Eastern oil market.

              The primary difference between these benchmarks lies in their geographical origins and levels of impurities.

              Tracking WTI Crude Oil

              For traders, WTI crude oil’s price movement is a key indicator. On platforms like TradingView, WTI is labelled as “US Oil” and provides valuable insights for market analysis. Observing technical patterns on WTI charts can help traders forecast movements in domestic crude oil contracts listed on the Multi Commodity Exchange (MCX).

              Understanding Crude Oil Trading on MCX

              Indian traders primarily access crude oil through MCX, which offers two types of contracts:

              1. Crude Oil (Standard): Contract size of 100 barrels.

              2. Crude Oil Mini: Contract size of 10 barrels.

              You can trade crude oil in India using any broker that offers access to MCX trading – Zerodha, Angel One, Upstox, etc.

              The crude oil market on MCX is highly active, with daily trading volumes exceeding ₹3,000 crores, equivalent to approximately 8,500 barrels. Both institutional and retail traders participate, with institutions often hedging their exposure in the physical market.

              How Prices Are Determined

              The price of crude oil on MCX is influenced by:

              • WTI Crude Oil Price: The global benchmark.
              • USD to INR Exchange Rate: Currency fluctuations directly impact domestic crude oil pricing.
              • WTI Price: $78.2 per barrel
              • USD/INR Exchange Rate: 86.62
                MCX Crude Oil Price: $78.2 × 86.62 ≈ ₹6,777

              Trading Hours

              WTI crude oil trades globally until 2:00 AM IST, while MCX closes at 11:30 PM (or 11:55 PM during daylight savings). This discrepancy can lead to price gaps and requires traders to account for after-market developments in global markets.

              Capital Requirements for Trading Crude Oil

              • Crude Oil (Standard): Requires a margin of approximately ₹3.32 lakhs for one lot.
              • Crude Oil Mini: Requires a margin of around ₹33,340 for one lot.

              For options traders, the required margin depends on the premium and lot size. Be cautious with options, as lower liquidity in the Indian market can lead to challenges in exiting trades, particularly if contracts are deep in-the-money.

              Key Data Points to Monitor

              Before diving into crude oil trading, closely monitor these factors:

              1. Geopolitical News: Global events like conflicts or OPEC meetings can significantly impact oil prices.

              2. Supply and Demand Data: Regular reports, such as the U.S. Energy Information Administration (EIA) inventories, influence short-term price movements.

              3. Technical Indicators: Utilise tools like moving averages, trendlines, and support/resistance levels to forecast price patterns.

              4. Currency Fluctuations: USD/INR movements can amplify or dampen the effects of international crude oil price changes.

              Trading Strategies for Crude Oil

              1. Futures Trading: Ideal for capturing directional moves in the market. However, ensure you understand margin requirements and risk management.

              2. Options Trading: Provides flexibility but requires caution due to liquidity constraints in the Indian market.

              3. Correlation Trades: Use crude oil trends to influence trades in related stocks or sectors, such as energy or logistics.

              4. Hedging: For advanced traders, crude oil can serve as a hedging instrument against exposure to other assets.

              Practical Tips for Beginners

              • Start Small: Begin with Crude Oil Mini contracts to limit risk.
              • Paper Trade: Use demo accounts to familiarise yourself with the market.
              • Stay Updated: Regularly monitor news and technical analysis platforms like TradingView.
              • Avoid Holding Positions Overnight: Gaps between global and domestic market hours can lead to unexpected losses.
              • Hedge Your Bets: Always consider strategies to minimise risk, especially in volatile markets.

              Conclusion

              Trading crude oil could be rewarding for disciplined and informed traders. Its global significance, high volatility, and accessibility on platforms like MCX make it a preferred choice for many. By understanding benchmarks, monitoring essential data points, and employing sound strategies, you can navigate the complexities of crude oil trading with confidence.

              Embark on your journey into crude oil trading today and harness its potential for growth. Remember, informed decisions and consistent learning are key to success in this dynamic market.

              Also Read: A Beginner’s Guide to Commodity Trading in India

              Disclaimer: Trading in commodities, including crude oil, involves risk and may not be suitable for all investors/traders. The information provided in this guide is for educational purposes only and should not be considered as financial, investment, or trading advice.

              Categories
              Editorial

              Understanding Volume Profile: A Powerful Tool for Traders

              what is volume profile? | marketfeed

              Volume is one of the most critical elements when analysing a stock’s price chart. Traditionally, traders analyse volume with respect to time. However, what if you could analyse volume with respect to price instead? This perspective unlocks a new layer of understanding in trading. Enter the Volume Profile—a versatile tool that gives traders insights into price levels with significant trading activity. In this article, we dive deep into understanding, using, and applying volume profile in trading.

              What Is Volume Profile?

              Volume Profile is a charting tool that plots trading volume against price rather than time. By doing so, traders can identify crucial price levels where significant activity has occurred. These levels often serve as strong support and resistance zones. Unlike traditional volume indicators, Volume Profile highlights areas of high liquidity where the price tends to gravitate and zones of low liquidity where the price can move rapidly.

              Let’s Look at an Example:

              Consider Raju, an onion wholesaler. Raju deals with highly volatile onion prices daily. He wants to know at what prices he sells the maximum and minimum quantities. By visualising onion prices and quantities sold on a chart, he discovers the most significant price levels. Similarly, traders can use Volume Profile to identify the most traded price levels for a stock, helping them understand key support and resistance zones.

              Key Components of Volume Profile

              1. Point of Control (POC): The price level where the highest volume of trades occurred. This level often acts as a pivot point for price action.

              point of control - volume profile | marketfeed

              2. High-Volume Zones: Zones with significant trading activity. These areas create a “gravitational pull,” slowing down price movement.

              3. Low-Volume Zones: Zones with minimal trading activity. Prices can move quickly through these areas due to low liquidity.

              volume zone - volume profile | marketfeed

              4. Fair Value: The range where 70% of all trades occur. Prices often oscillate within this range, creating a balance zone.

              fair value - volume profile | marketfeed

              Volume Profile provides actionable insights by uncovering patterns hidden within price and volume data. Next, let’s discuss how traders can interpret various scenarios.

              Candlestick Analysis with Volume Profile

              1. Bullish Candle: If the price closes above the fair value zone, the candle is bullish. Buyers demonstrate strength by breaking out of high-liquidity areas, suggesting upward momentum. For example, if a green candle closes above its POC, the POC may act as a strong support level in subsequent sessions.

              2. Bearish Candle: A red candle closing below the fair value zone indicates bearish sentiment. Sellers overpower buyers, pulling the price down. In this case, the fair value acts as a resistance zone.

              3. Neutral Candle: When the price closes near the fair value, the candlestick is neutral, signalling indecision. Analysing multiple candles in such cases is essential to identify the prevailing trend.

              4. Trend Reversal Candles: In some cases, the price moves strongly during the day but gets trapped in the fair value zone by the close. For instance:

              (i) Bullish to Neutral Reversal: Price rises quickly in a low-liquidity zone but closes in the fair value range.
              (ii) Bearish to Neutral Reversal: Price falls rapidly through low liquidity but closes in the fair value range.

              These scenarios indicate potential reversals for the next trading session.

              Intraday and Swing Trading with Volume Profile

              • Intraday Traders: Analysing the previous day’s Volume Profile helps anticipate trends for the next session. Key levels like POC and high-volume nodes provide critical zones for support and resistance.
              • Swing Traders: Longer-term trends can be identified by studying the Volume Profile over a week or month. Consolidation patterns and high-volume zones help traders understand upcoming support and resistance levels.

              Step-by-Step Guide to Using Volume Profile

              1. Open Your Charting Platform: On platforms like TradingView, navigate to the “Forecasting and Measurement Tools” section.

              2. Select Fixed Range Volume Profile: This tool is ideal for analysing volume over two fixed price ranges.

              3. Plot the Volume Profile: For instance, when analysing Cochin Shipyard stock, you can plot the day’s Volume Profile to identify key levels.

              4. Adjust the Fair Value Range: By default, 70% of trades are highlighted. Reducing this to 35% narrows the focus, enabling better insights into key zones.

              5. Analyse the Data: Use the plotted profile to identify the day’s fair value, POC, and high/low-volume zones.

                Example: Suppose Cochin Shipyard’s stock forms a red daily candle and closes inside its fair value zone. This indicates a potential reversal, as sellers couldn’t sustain their momentum. The next day’s trend might see the price bounce upward from this fair value zone.

                (Volume Profile in action in TradingView)

                Why Volume Profile is Essential

                1. Enhanced Market Understanding: By analysing volume at price levels, traders gain a clearer picture of market dynamics.

                2. Improved Accuracy: The tool helps pinpoint high-probability support and resistance zones.

                3. Combination with Other Tools: Volume Profile complements other technical analysis techniques, enhancing their effectiveness.

                  Conclusion

                  Mastering the Volume Profile can significantly improve your trading strategy. By understanding volume in relation to price rather than time, you unlock new dimensions of analysis. Whether you are an intraday trader or a swing trader, incorporating this tool into your arsenal will increase your trading success rate. So why wait? Start exploring Volume Profile today and take your trading skills to the next level!

                  Categories
                  Editorial

                  Here’s Why You NEED a Trading Plan in 2025

                  trading plan in 2025 | marketfeed

                  Trading in financial markets can be thrilling and profitable, but for many, it leads to consistent losses. A key reason for this is the absence of a well-structured trading plan. If you’re serious about making profits and avoiding emotional pitfalls, understanding and implementing a trading plan in 2025 is non-negotiable. In this article, we dive into the step-by-step process of building a robust trading plan.

                  Why Traders Lose Money Without a Plan

                  Statistics reveal that a staggering 90% of Indian traders experience losses. Out of this, 70% of traders who lose money don’t have a plan. This highlights the critical role a trading plan plays. While having a plan doesn’t guarantee immunity from losses, it significantly improves the odds of profitability by:

                  1. Avoiding emotional trading caused by impulsive decisions.
                  2. Promoting discipline and consistency, key traits for success.

                    Key Components of a Trading Plan

                    To craft a robust plan, focus on these components:

                    1. Set Clear Goals

                    Your trading goals should be:

                    • Specific: What do you aim to achieve?
                    • Measurable: How will you track your progress?
                    • Realistic: Are your targets aligned with your trading style?

                    Define attainable benchmarks based on your trading approach.

                    2. Risk Management

                    Here’s how you can protect your trading capital:

                    • Follow the 2% rule: Risk only 2% of your capital per trade.
                    • Diversify across strategies, sectors, and assets.
                    • Use stop-loss and position sizing to control losses.

                    Explore our Position Sizing Calculator!

                    3. Develop a Strategy

                    Your strategy should include:

                    • Indicators suited to your trading style: Examples include Relative Strength Index (RSI), Moving Average Convergence/Divergence (MACD), or multi-Exponential Moving Average (EMA) setups. [Read: What are Technical Indicators?]
                    • Rigorous backtesting: For systematic traders, test your strategy on historical data. For discretionary traders, forward test with small capital.
                    • Clear entry and exit rules: Define triggers for profitable and loss-making scenarios.

                    4. Review and Adapt

                    No plan is perfect from the start. Regularly assess and refine your approach by:

                    • Maintaining a trading journal to document strategies, trades, and emotional states.
                    • Tracking key metrics like win rates, risk-reward ratios, and drawdowns.
                    • Adapting to market conditions and learning from both successes and failures.

                    A trading plan is only effective if followed with discipline. Without consistency, even the most sophisticated plan will fail. Train your mind to stick to your rules and avoid impulsive deviations.

                    Automated Solutions for Modern Traders

                    If tracking multiple strategies feels overwhelming, consider algo trading services like those offered by marketfeed. Our automated systems execute pre-defined strategies, eliminating emotional biases and ensuring consistency!

                    Conclusion

                    Creating and following a trading plan is the cornerstone of successful trading. By setting realistic goals, managing risks, developing effective strategies, and continuously reviewing your performance, you can pave the way for consistent profits. Whether you’re an option buyer, swing trader, or algo trader, the principles of a trading plan apply universally.

                    Ready to take your trading to the next level? Start crafting your trading plan today—and watch your performance improve exponentially.

                    Watch: Why You Need a Trading Plan in 2025!

                    Categories
                    Editorial

                    A Guide to Commodity Trading in India

                    commodity trading in India | marketfeed

                    Commodity trading is an exciting segment of financial markets that many traders in India are unaware of. While Indian equity markets operate from 9:15 a.m. to 3:30 p.m., the commodity market offers extended trading hours from 9:00 a.m. to 11:30 p.m., divided into two sessions. This is especially beneficial for working professionals who can trade after office hours. However, entering this market requires a clear understanding of its dynamics, benefits, and risks. In this article, we dive into everything you need to know about commodity trading in India.

                    What is Commodity Trading?

                    Commodity trading involves buying and selling commodities, such as natural resources or agricultural products, on exchanges. This can include energy sources like crude oil and natural gas, metals such as gold and silver, and agricultural products like wheat and cotton. The primary goal in commodity trading is to profit from fluctuations in the price of these commodities.

                    Why Does Commodity Trading Exist?

                    Unlike equity markets that exist for companies to raise funds, the commodity market primarily serves to allow businesses to hedge against price fluctuations. For example, consider a gold shop owner named Charlie. He holds 10 kg of gold, hoping to profit from making jewellery. If the price of gold falls significantly from ₹80,000 per 10g to ₹60,000, Charlie may incur losses that outweigh his profits from jewellery sales. But if the price of gold goes way up (say ₹1 lakh per 10g), he might earn more, but it will also cost him more to restock. Thus, commodity trading allows Charlie to hedge his risk by using futures contracts to balance potential losses or gains.

                    [A futures contract is an agreement to buy or sell something (like gold, oil, or stocks) at a fixed price on a future date. It helps buyers and sellers protect themselves from price changes—buyers lock in lower prices if they expect a rise, while sellers secure higher prices if they expect a drop.]

                    How to Get Started in Commodity Trading in India?

                    To begin trading commodities, you need to understand the basics, including the types of commodities available, how trading works, and the exchanges involved.

                    In India, there are two primary exchanges for commodity trading:

                    • National Commodity & Derivatives Exchange Ltd (NCDEX): This platform primarily deals with agro-based commodities like wheat, spices, and cotton.
                    • Multi Commodity Exchange (MCX): This is where non-agro commodities like gold, silver, zinc, and crude oil are traded.

                    Both exchanges are regulated and provide a safe environment for trading. It is crucial to avoid unregulated platforms or apps that do not adhere to SEBI guidelines!

                    All major brokers in India like Zerodha, Upstox, Fyers, etc. support commodities trading. You should activate the commodities segment separately in your broker/trading account.

                    Types of Contracts

                    Commodity trading mainly involves derivatives, specifically futures and options:

                    • Futures Contracts: Agreements to buy or sell a commodity at a future date at a predetermined price.
                    • Options Contracts: Rights to buy or sell a commodity at a specific price before a set date.

                    Unlike stocks, commodities can’t be held forever. Every futures or options contract has an expiry (settlement) date. As a thumb rule, never let your commodity trades enter into a settlement phase. It’s better to square off your positions at least 2-3 days before the settlement date.

                    Some of the most actively traded commodities include:

                    • Gold: Available in various contract sizes, including 1 kg, 100 g, and 8 g.
                    • Silver: Typically traded in contracts of 30 kg or smaller sizes.
                    • Crude Oil: A significant commodity often influenced by global market conditions.
                    • Natural Gas: Another volatile commodity that attracts traders.

                    The capital needed to trade commodities depends on the type of commodity and the broker’s policies. Brokers often have specific margin requirements for commodities.

                    Commodity trading offers high leverage. For example, a gold mini contract worth ₹7.2 lakh may only require ₹72,000 as margin. Leverage amplifies both profits and losses, so it’s essential to have proper risk management strategies in place!

                    Commodity Indices in India

                    Similar to equity indices like Nifty50, commodity markets also offer indices for trading:

                    1. Bullion Index: Tracks gold and silver prices.
                    2. Metal Index: Tracks aluminium, copper, lead, zinc, and nickel prices.
                    3. Energy Index: Tracks crude oil and natural gas prices.

                    These indices allow traders to speculate on overall market movements rather than individual commodities.

                    Advantages of Commodity Trading

                    Commodity trading offers several benefits that can attract both individual and institutional traders:

                    • High Liquidity: Many commodities, especially gold and crude oil, have high trading volumes. These markets tend to follow price action well.
                    • People who are unable to trade during the daytime (office-goers) can use the opportunity to make potential extra income!
                    • Less Price Manipulation: Commodities are traded globally, reducing the chances of price manipulation compared to more localised markets.
                    • Hedging Opportunities: Businesses can hedge against price fluctuations to stabilise costs and revenues.

                    Disadvantages of Commodity Trading

                    While there are many advantages, there are also significant risks and drawbacks to consider:

                    • High Price Volatility: Commodity prices can change rapidly due to geopolitical factors or supply and demand shifts, which may result in substantial losses for unprepared traders.
                    • Leverage Risks: Trading with leverage can amplify losses. Commodity traders must understand how to manage leverage effectively.
                    • Liquidity Issues: Not all contracts have the same level of liquidity, which can complicate trades and lead to slippage.
                    • Geopolitical Sensitivity: Commodity markets are often the first to react to global events, requiring traders to stay informed about international affairs.

                    Conclusion

                    Commodity trading presents a unique opportunity for investors looking to diversify their portfolios and take advantage of market fluctuations. Also, profits from commodity trading are treated as business income (same as F&O). You’ll have to pay tax based on your tax slab.

                    Approach the commodities market only after a thorough understanding of the risks involved, the mechanics of trading, and the specific commodities you wish to trade. Always start small, educate yourself continuously, and consider consulting with financial advisors to navigate the commodities market effectively.

                    As you venture into commodity trading, remember to keep your capital allocation conservative, especially if you’re new to the field. With the right strategies and knowledge, you can successfully navigate the volatile waters of commodity trading and potentially achieve significant returns. Happy trading!

                    Categories
                    Editorial

                    A Beginner’s Guide to Mutual Fund Investments

                    mutual fund invesmtents india | marketfeed

                    Legendary investor Warren Buffett’s famous quote, “Be fearful when others are greedy and be greedy when others are fearful,” often resonates in investing. This philosophy highlights the importance of investing wisely, especially when others are uncertain or scared. The Indian mutual fund market has seen an impressive surge in retail investments, with a net inflow of ₹41,877 crores in October alone (up 22% month-on-month), despite the stock market witnessing a significant drop of over 6%. This spike in mutual fund investments shows growing confidence among Indian retail investors, who are taking advantage of market volatility.

                    In this article, we will explore mutual funds, the different types of mutual funds, and key metrics you should consider before investing in them. By the end of this guide, you will have a better understanding of how to approach mutual fund investments and make informed decisions.

                    What are Mutual Funds?

                    A mutual fund is a pool of money collected from various investors to invest in a diversified portfolio of securities like stocks, bonds, and other financial instruments. Instead of investing directly in individual stocks, investors contribute money to a mutual fund, which is then managed by professionals. The aim is to generate returns for the investors, who receive profits based on the performance of the fund. In India, mutual funds are run by reputed financial players like SBI, HDFC, UTI AMC, etc.

                    The Securities and Exchange Board of India (SEBI) tightly regulates mutual funds to protect investors, making them a trustworthy option despite inherent market risks.

                    Understanding Mutual Fund Categories

                    1. Equity Mutual Funds:

                    These funds invest primarily in stocks/equities (like Reliance, HDFC Bank, etc). This category is popular among retail investors who seek higher returns over the long term. The returns can be substantial when the market performs well. However, they come with higher risk, as the stock market can be volatile.

                    2. Debt or Liquid Mutual Funds:

                    These funds invest in fixed-income securities such as corporate bonds, government bonds, and money market instruments. Debt mutual funds are typically safer than equity funds and are a popular choice among investors who want to park their surplus cash. These funds generally provide stable but lower returns compared to equity funds, making them suitable for conservative investors.

                    3. Balanced or Hybrid Funds:

                    Balanced funds invest in a combination of equities, bonds, and sometimes commodities like gold. These funds aim to provide the best of both worlds: growth potential from equities and stability from debt instruments.

                    While balanced funds can be a good option for beginners, investors looking for higher returns may prefer to focus more on equity funds once they understand the basics of investing.

                    How to Invest in Different Mutual Funds?

                    • Long-term goals (e.g., buying a house): High equity allocation for better returns over decades.
                    • Short-term goals (e.g., a foreign trip): Focus on debt funds for stability.
                    • Balanced Funds: For beginners with no specific goals, offering simplicity and diversity.

                    Thumb Rule:

                    • Long-term = higher equity allocation.
                    • Short-term/emergency = higher debt allocation.

                    Active vs Passive Mutual Funds

                    Mutual funds can be broadly categorized into two types based on their investment approach: active mutual funds and passive mutual funds. Here’s a breakdown:

                    1. Active Mutual Funds

                    Active mutual funds are managed by professional fund managers who actively make decisions about which stocks or securities to buy, hold, or sell. Their goal is to outperform a specific benchmark or index by leveraging market insights, research, and expertise.

                    Example: A large-cap equity fund aiming to outperform the Nifty50 Index.

                    2. Passive Mutual Funds

                    Passive mutual funds, often called index funds or exchange-traded funds (ETFs), aim to replicate the performance of a specific market index rather than beat it. They invest in the same securities in the same proportions as the underlying index.

                    Example: An index fund that tracks the Nifty50 or Sensex.

                    How to Choose an Active Mutual Fund?

                    When investing in mutual funds, it’s crucial to assess key factors that determine the fund’s performance. Here are five key ratios and metrics that will help you choose the best mutual fund:

                    1. Rolling Returns: This metric measures the fund’s performance over different periods, helping you understand its consistency. Look for funds with strong rolling returns over 3 years, ideally 30% or more.

                    2. Alpha: Alpha represents the percentage by which the fund outperforms its benchmark index. A positive alpha indicates that the fund manager is adding value by selecting the right stocks. Look for funds with an alpha of at least 2%, meaning the fund is outperforming its benchmark by this margin.

                    3. Sharpe Ratio: This ratio measures the risk-adjusted returns of a fund. It compares the return of the fund with the risk-free return (such as government bonds). A Sharpe ratio of more than 1 is considered good because it means the fund is delivering decent returns for the level of risk taken.

                    4. Assets Under Management (AUM): AUM refers to the total market value of the assets managed by the fund. A higher AUM can indicate a stable, trusted fund with significant investor interest. However, a very high AUM may affect the fund’s ability to generate returns, especially in smaller-cap stocks.

                    5. Percentage Away from All-Time High: This metric indicates how much the fund has fallen from its peak. While investing in a fund that has recently dipped might seem like a good deal, it’s essential to evaluate the reasons behind the drop. Look for funds that have a reasonable distance from their all-time high and aren’t in a downtrend due to poor management or strategy.

                      Practical Application: Using Screening Tools

                      To simplify the process of selecting mutual funds, investors can use online tools like TickerTape. TickerTape allows you to filter mutual funds based on the above metrics, helping you narrow down your choices. You can analyze funds in different categories (like small-cap, mid-cap, or large-cap) and make informed decisions based on their performance metrics.

                      For example, if you’re looking for a small-cap mutual fund, you can apply the following filters:

                      • Rolling returns of at least 30% over 3 years
                      • Alpha greater than 2%
                      • Sharpe ratio of more than 1
                      • AUM above 5,000 crores

                      By using these parameters, you can shortlist funds that meet your investment objectives and risk profile.

                      Check out the filtered Google Sheet of mutual funds derived from the formula given above: https://marketfeed.me/mutualfundlist

                      Conclusion

                      Mutual fund investing can be a smart way to build wealth over time, especially for those who are new to the stock market. By understanding the different types of mutual funds and applying key metrics like rolling returns, alpha, and Sharpe ratio, you can make informed decisions and build a diversified portfolio. Remember to tailor your investments to your financial goals—whether it’s a long-term objective like retirement or a short-term goal like funding a vacation.

                      The Indian mutual fund market is growing rapidly, and by making the right choices, you can benefit from the wealth of opportunities available. Always do thorough research and, if necessary, consult a financial advisor to ensure your investments align with your goals and risk tolerance.

                      Disclaimer: Mutual fund investments are subject to market risks. Please do your own research or talk to a registered investment advisor/profession before investing in mutual funds.

                      Categories
                      Algo Trading

                      Can You Do Algo Trading in Zerodha?

                      algo trading in zerodha | marketfeed

                      Algo trading has become increasingly popular among many who seek to gain an edge in the stock market. As technology advances, many Indians are exploring the possibilities of automating their trading strategies to capitalise on market trends with high precision and speed. But have you wondered if you could do algo trading in Zerodha, one of the leading brokers in India? In this article, we’ll explore that very question!

                      What is Algo Trading?

                      Algo trading is a method of executing orders in the financial markets (stocks, derivatives-F&O, currencies, commodities, etc.) using automated or pre-programmed trading instructions. The ‘algorithm’ places orders based on specific rules and criteria, including price, timing, and quantity instructions. The trading algorithm follows the instructions to identify opportunities in the market and executes orders when the conditions are satisfied.

                      ‘Algos’ can analyse market or trading data, track performance, and execute trades based on pre-set trading strategies without human intervention!

                      Here’s an example: Suppose a trader has a strategy to buy when a stock price surpasses its 50-day moving average and sell when it falls below. An algorithm can monitor the stock and execute these trades at lightning speed, saving considerable time and effort. This makes algo trading attractive to those interested in executing trades quickly or simply eliminating the emotional biases of manual trading.

                      Can You Do Algo Trading in Zerodha?

                      Zerodha is a leading brokerage firm known for its affordable and user-friendly platform for investing and trading. Established in 2010, they pioneered the discount brokerage model in India, offering a flat fee of ₹20 per executed order across various trading segments. This reduced the cost of trading compared to traditional brokers who charged a percentage of the trade value! Zerodha allows you to trade in stocks, derivatives, commodities, and currencies through its flagship platform, Kite.

                      Since 2019-20, there’s been a notable rise in retail traders engaging in algo trading in India. This growth is mainly driven by brokers and algo trading platforms offering Application Programming Interfaces (APIs) to help retail traders easily implement their trading strategies or execute trades. An API is essentially a set of tools and protocols that allow software to interact with brokers, trading platforms, and exchanges/data vendors to place orders automatically.


                      Here are two ways you can do algo trading in Zerodha:

                      1. Kite Connect

                      If you have basic coding or technical trading knowledge and are interested in algo trading, you can use Zerodha’s Kite Connect API to: 

                      • Get Market Data: You can access historical price and volume data through Kite API. You can also get live market data to track price movements across asset classes like equities, derivatives (F&O), currencies, and commodities.
                      • Place Orders: Kite Connect API helps you code your own trading strategies, use real-time data to create buy or sell signals, and have them executed directly on Kite through APIs. You can start by setting up your strategy and then let live market data trigger your signals automatically. As your strategies run, the API keeps you updated so you can monitor performance and adjust based on market changes—all in real time.

                      The monthly subscription for Kite Connect API is ₹2,000 per app, with an additional ₹2000 for historical data access. You will need to familiarise yourself with various endpoints available in the Kite Connect API documentation, such as placing orders, retrieving market data, and managing your portfolio.

                      2. Streak

                      Zerodha Streak is a user-friendly platform designed for beginner traders/investors, allowing you to create, backtest, and deploy trading strategies without any prior coding knowledge. With Streak, you can:

                      • Create Trading Strategies: You can create custom trading strategies (primarily on equities only) using technical indicators or scanners and set specific conditions based on market movements. You can also explore certain pre-defined strategies on Streak.
                      • Backtest Strategies: Streak allows you to backtest equity trading strategies against historical data to evaluate their performance before deploying them in live markets. 
                      • Deploy Strategies: Once your trading strategy is tested and refined, users can deploy it virtually (paper trading).

                      Streak does not offer automatic order placement services for equities, derivatives (futures/options) or other securities. It provides one-click actionable notifications whenever your set trading conditions are met, allowing you to quickly place orders with ease. When you receive a strategy notification, simply click to open the pre-filled order window, which includes all necessary details such as price and quantity. Just confirm by clicking buy or sell to execute the trade. This additional confirmation step ensures compliance with trading regulations.

                      Streak is exclusively free for all Zerodha users. You can deploy up to 5 live strategies (including Scanners and Strategies) and up to 15 virtual strategies at a time. Streak allows you to run unlimited backtests on equities and manually added options contracts, while dynamic options contracts are limited to 50 backtests per day.

                      Be Cautious!

                      Several third-party algo trading platforms in India integrate with Kite API without Zerodha’s endorsement or oversight. Some of these platforms even claim partnerships with Zerodha without their permission, using its name to promote their products and occasionally making exaggerated promises of guaranteed profits! Zerodha has time and again mentioned that it is actively working to prevent these platforms from misusing its brand and protect customers from being misled. Always do your own research and due diligence before signing up to such third-party platforms for algo trading!

                      SEBI’s Stand on Algo Trading in India

                      The Securities and Exchange Board of India (SEBI) has introduced several measures to regulate algo trading, but only for big institutions (brokerage firms, banks, investment firms, etc.). There are no specific laws surrounding algo trading for retail traders in our country. However, SEBI is concerned about the impact of algo trading on market stability, especially due to the increasing popularity of unregulated platforms that promote “off-the-shelf” algorithms with often misleading claims of high returns. Meanwhile, brokers like Zerodha are asked not to associate directly or indirectly with any algo trading platform claiming historical returns for their strategies.

                      In 2021, SEBI proposed a solution to classify every API-based order as an “algo order”. This would require brokers to get exchange approval for every strategy used through APIs and confirm each order’s connection to the approved strategy—a very complicated and lengthy process. This approach could likely force brokers to stop offering APIs altogether!

                      In one of his                       blogs, Zerodha’s co-founder, Nithin Kamath, said they support SEBI’s protective measures. However, the company suggested a different approach: directly regulating algo trading platforms under the RIA (Registered Investment Adviser) or RA (Research Analyst) frameworks.

                      Conclusion

                      Algo trading is possible in Zerodha through Kite Connect API and Streak, though with major limitations since it operates within regulatory boundaries that prioritise the protection of market participants. Zerodha’s Kite API is designed for tech-savvy users who seek data access for analysis, manual signal generation, and backtesting. And Streak can be helpful for beginner traders who wish to do algo trading on stocks.

                      You should always approach algo trading with a clear understanding of the risks and be cautious of platforms that promise easy or guaranteed profits!

                      FAQs:

                      1. Can I do fully automated algo trading in Zerodha?

                      No, Zerodha does not allow fully automated algo trading where orders are placed automatically without user intervention. While the platform’s Kite Connect API allows traders to create and execute strategies, order placement must comply with regulatory guidelines. Streak, another platform by Zerodha, allows strategy creation and backtesting but requires users to confirm trade execution manually.

                      2. What is the cost of using Zerodha’s Kite Connect API for algo trading?

                      Zerodha’s Kite Connect API subscription costs ₹2,000 per month per app. If you require historical market data, an additional ₹2,000 per month is charged. This API is designed for traders with coding knowledge who want to build and automate their trading strategies within regulatory limits.

                      3. Is algo trading regulated by SEBI for retail traders?

                      Currently, SEBI does not have specific regulations for retail traders using algo trading. However, the market regulator has expressed concerns over unregulated algo trading platforms and proposed stricter oversight of API-based trading. Zerodha follows regulatory guidelines and does not support fully automated execution of trades without manual confirmation.

                      Categories
                      Algo Trading

                      What Are The Risks of Algo Trading?

                      risks of algo trading | marketfeed

                      Algo trading has become a popular alternative to traditional trading, which can often be time-consuming and emotionally draining. Traders can now automatically execute trades at lightning speed using computer algorithms. While it offers many advantages—speed, precision, and efficiency—algo trading comes with its own set of risks. It’s crucial to understand these risks before diving into this high-tech approach to trading.

                      In this article, we explore some of the key risks involved in algo trading and ways to minimise
                      them.

                      Let’s Understand Algo Trading!

                      Algorithmic (algo) trading involves using automated, pre-programmed instructions to place orders in financial markets— stocks, derivatives (F&O), currencies, and commodities. These algorithms follow specific rules based on factors like price, timing, and quantity to identify trading opportunities and automatically execute orders once set conditions are met. Algos can analyse vast amounts of market data, monitor performance, and execute trades seamlessly, all without human intervention!

                      For instance, imagine a trader with a strategy to buy a stock when its price rises above the 50-day moving average and sell when it drops below. An algorithm can track this stock continuously and execute trades the moment the criteria are met. It’s rapid and reduces the time and effort required to trade, compared to traditional methods. This precision and efficiency make algo trading appealing for those who value speed and wish to minimise emotional biases in their trading decisions.

                      What are the Risks of Algo Trading?

                      1. Technical Glitches

                      Algo trading is highly dependent on technology, meaning any technical glitch can have serious consequences. A minor error, like a coding bug or server malfunction, can trigger unintended trades or even cause a series of rapid trades that disrupt the market. Such errors have, in extreme cases, led to flash crashes—sudden, severe market drops driven by automated trading gone wrong.

                      For instance, if a server outage stops the algorithm from executing trades, it could miss critical opportunities or fail to exit a position at the right time. To prevent this, traders should implement robust monitoring and backup systems. Having manual oversight and setting up contingency plans, like alert systems or manual intervention protocols, can help address issues as soon as they arise, reducing the impact of technical mishaps.

                      2. Data Quality and Integrity

                      The success of algo trading largely relies on the quality of data fed into the algorithm. Poor or outdated data can lead to inaccurate decisions, resulting in losses. For example, if an algorithm is backtested using unreliable historical data, it might suggest profitable patterns that don’t hold up in live trading. Real-time data errors, like incorrect prices, can also cause the algorithm to execute faulty trades.

                      To avoid this, traders should source data from reputable data providers/vendors and consistently verify its accuracy and integrity. [You can source data directly through exchanges, brokers, or data vendors.] Popular data vendors in India include TrueData, Global Datafeeds, and Accelpix.] Regularly updating data feeds and cross-checking sources can ensure the algorithm is always working with accurate information, minimising the risk of errors based on faulty data.

                      Also Read:                       How to Source Market Data for Algo Trading?

                      3. Overfitting

                      Overfitting occurs when an algorithm is overly customised to historical data, making it less effective in real-world trading. In essence, the algorithm “learns” past trends too well, which might limit its adaptability to current and future market conditions. For example, an algorithm might show great performance when tested on past data but struggle to generate profits when market conditions change.

                      One way to address overfitting is by designing algorithms that balance specificity with adaptability. Regularly testing the algorithm with new and varied data can also reveal whether it’s overly dependent on past trends. By developing flexible strategies, traders can ensure that their algorithms are capable of adapting to changing market dynamic

                      4. Cyber Threats

                      In today’s digital age, cybersecurity is crucial, especially for algo trading platforms where valuable trading strategies and sensitive data are stored. Hackers or cyber attackers might attempt to steal proprietary trading algorithms or disrupt trading activities. For instance, a hacker gaining access to a trading account could lead to unauthorised trades, resulting in significant financial losses.

                      Traders can mitigate this risk by investing in strong cybersecurity measures, such as multi-factor authentication and encrypted data storage. Regularly updating software and staying informed about the latest cybersecurity threats are essential practices. Ultimately, protecting trading systems against cyber threats is as important as developing profitable trading strategies.

                      5. Lack of Human Oversight

                      You may be wondering: isn’t algo trading all about eliminating manual aspects of trading? Well, there’s more to it. One critical risk in algo trading is the absence of human supervision, which can lead to unexpected and sometimes severe consequences. Algorithms are typically designed based on historical data and specific rules, meaning they may fail to account for rare or unforeseen market events, known as black swan events. For example, during a sudden market crash or an unexpected geopolitical event, an algorithm might continue trading in ways that amplify losses, as it lacks the judgment to pause or reassess in extreme conditions.

                      To mitigate this risk, it’s essential to maintain some level of human oversight. Regularly monitoring the performance of algorithms and having manual override options in place can help traders intervene when markets behave unpredictably. Staying informed about major events and adjusting algorithms accordingly can also reduce the chances of undesirable outcomes.

                      Conclusion

                      Here’s an important aspect we would like to mention: risks in algo trading can be highly subjective. What might be a significant risk for one trader could be manageable for another, depending on factors like their experience, financial capacity, and trading objectives. An experienced trader with a strong understanding of the market and ample capital might be more willing to take on risks compared to a beginner with limited resources.

                      The key to successful algo trading is not just recognising the risks but also knowing how to manage and mitigate them effectively. By implementing strong risk management practices, staying informed, and approaching each risk with a clear strategy, traders can navigate the challenges of algo trading more confidently.

                      Remember, no trading strategy is entirely risk-free, but with the right approach, you can maximise the potential rewards while minimising potential pitfalls in algo trading. 

                      FAQs

                      1. What are the biggest risks in algo trading?

                      Algo trading carries several risks, including technical glitches, data quality issues, overfitting, cyber threats, and lack of human oversight. A minor coding error or server failure can lead to unintended trades, while reliance on poor-quality data may result in inaccurate decisions. Cybersecurity threats can also compromise trading systems. Moreover, algorithms may fail to adapt to unpredictable market events without human intervention.

                      2. How can technical failures affect algo trading?

                      Technical failures like server outages, coding bugs, or software crashes can cause algorithms to malfunction, leading to missed opportunities or unintended trades. In extreme cases, these failures can contribute to market disruptions (such as flash crashes). To mitigate this risk, traders must have backup systems, alert mechanisms, and manual intervention protocols in place.

                      3. What is overfitting in algo trading, and why is it a problem?

                      Overfitting occurs when an algorithm is overly optimised for historical data, making it less effective in live trading. This happens when a strategy is designed to fit past trends too precisely, limiting its ability to adapt to real-world market changes. To avoid this, traders should test strategies on new and varied data to ensure adaptability.

                      4. How can traders protect their algo trading systems from cyber threats?

                      To protect algo trading systems from cyber threats, traders should implement multi-factor authentication, encrypted data storage, and regular software updates. Use secure networks, monitor unusual activity, and stay informed about cybersecurity risks to safeguard your trading strategies and sensitive information.

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                      Editorial

                      Understanding the Magic Formula: A Value Investing Strategy

                      magic formula strategy in India | marketfeed

                      Imagine a value investing strategy that claims to have returned investors a 30% Compound Annual Growth Rate (CAGR) over 26 years. If you had invested ₹1 lakh into this strategy, it says you would have turned into over ₹9 crore! Sounds incredible, right? That’s the Magic Formula investment technique. In this article, we will dive deep into this investment strategy, exploring its origin, the nine key rules it follows, backtesting data, and its relevance in both the U.S. and Indian markets.

                      The Origins of the Magic Formula

                      Joel Greenblatt, a renowned asset manager since the 1980s, wrote a book titled The Little Book That Beats the Market, where he presented the magic formula for value investing. Greenblatt is a professional investment manager with an impressive $6.3 billion in Assets Under Management (AUM). His magic formula is said to be a simplified version of the value investing strategies used by legends like Warren Buffett and Charlie Munger.

                      In his book, Greenblatt outlines how investors can generate market-beating returns by following a set of simple rules. His confidence in the strategy led to a follow-up book, The Little Book That Still Beats the Market, further emphasising its relevance. The formula has been consistently applied for over two decades and claims to outperform traditional market benchmarks.

                      What is the Magic Formula?

                      The magic formula is a stock-picking strategy based on two financial metrics: earnings yield and return on capital (ROC). The strategy focuses on buying good companies at bargain prices, similar to Warren Buffett’s approach, but Greenblatt simplifies the process into an easy-to-follow method.

                      The key idea behind the formula is to select companies with a high earnings yield (indicating that the company is undervalued) and a high return on capital (showing that the company is efficiently using its capital to generate profits). These two metrics help identify companies that have strong earning potential and are available at a relatively cheap price.

                      Why Use the Magic Formula?

                      Greenblatt wanted to simplify stock picking to make it understandable even to a teenager. The book is written in simple language and provides a clear framework to follow, making value investing more accessible to beginners. As Greenblatt famously said, “Choosing individual stocks without any idea of what you’re looking for is like running through a dynamite factory with a burning match. You may live, but you’re still an idiot.”

                      In short, the magic formula provides a structured way to invest in the stock market, ensuring that investors are not making random picks but are following a tested and data-driven strategy.

                      The Nine Rules of the Magic Formula

                      Now that we have a basic understanding of the magic formula, let’s break down the nine rules that form the foundation of this strategy:

                      1. Market Cap Greater Than $50 Million

                      The formula requires that you only assess companies with a market cap greater than $50 million. In the Indian context, this translates to about ₹400 crore. However, we’ll focus on companies with a market cap of over ₹1,000 crore to account for inflation and currency depreciation.

                      2. Exclude Utility and Financial Stocks

                      Greenblatt’s strategy excludes utility and financial companies. Although he doesn’t provide a specific reason, it is likely because these industries tend to carry high debt levels, which may misrepresent/skew the financial metrics the formula relies on.

                      3. Avoid International Companies

                      The formula excludes international companies. Since there are very few foreign companies listed in our country, this rule is easily applicable in the Indian market.

                      4. Calculate Earnings Yield

                      Earnings yield can be calculated as earnings per share divided by the current share price, or using the formula EBITDA divided by enterprise value. The goal is to understand the company’s earnings capacity, essentially evaluating how well it is managing its profits relative to its price.

                      5. Calculate Return on Capital (ROC)

                      Return on capital measures the company’s profitability relative to the capital invested in the business. This metric reveals how efficiently the company is using its resources. Think of Coca-Cola, which can generate high profits with relatively low capital due to the brand’s long-standing moat. This rule is designed to simplify Buffett’s approach to analysing a company’s earnings potential.

                      6. Rank Companies Based on Earnings Yield and ROC

                      Once you’ve calculated the earnings yield and return on capital for each company, rank them accordingly. Companies with the highest combined earnings yield and ROC should be prioritised.

                      7. Invest in Top 20-30 Companies

                      After ranking the companies, invest in the top 20-30 based on their earnings yield and ROC. In the second edition of the book, Greenblatt introduced a small tweak: invest only in companies with a price-to-earnings (P/E) ratio greater than five. This helps to avoid low-quality or overly volatile stocks.

                      8. Rebalance Your Portfolio Annually

                      Greenblatt suggests rebalancing your portfolio once a year. He also introduces a useful tax-saving tip: sell loss-making stocks in the 51st week to account for short-term capital losses, which can be offset against other gains. Hold profitable investments for over 52 weeks to benefit from lower long-term capital gains taxes.

                      9. Stick to the Strategy for 5-10 Years

                      Finally, the magic formula requires patience. You need to stick to this strategy for at least five to ten years to see the compounding effect and generate significant returns. Short-term fluctuations in the market can cause temporary losses, but the long-term benefits are where the real value lies.

                      Backtesting the Magic Formula

                      Backtesting of the magic formula has shown positive results in different markets. Studies have consistently proven that the strategy outperforms the market over time, especially in non-bearish market conditions. Greenblatt’s own backtest of the U.S. market suggests that the formula has outperformed benchmarks like the S&P500 by a significant margin.

                      A study conducted in India in 2022 by professors from the University of Delhi revealed that the magic formula worked well in the Indian market. Over a period from July 2012 to 2020, the BSE Sensex gave returns of around 99.8%, while Greenblatt’s magic formula returned more than 1% CAGR during the same period.

                      This shows that the magic formula is not only relevant in the U.S. market but can also be applied successfully in India. With backtested data supporting its credibility, the magic formula stands as a proven, easy-to-implement value investing strategy.

                      How to Use the Magic Formula Screener in India?

                      To implement magic formula investing effectively, you can use online tools such as screener.in. This stock screener platform allows you to filter companies based on specific criteria aligned with the Magic Formula’s rules. Here’s how you can set up the screener:

                      1. Set a market capitalisation filter of greater than ₹1,000 crore.
                      2. Set a return on invested capital (ROIC) filter of greater than 25%.

                      After applying these filters, you’ll generate a list of potential quality companies to evaluate. The next step involves exporting this data into an Excel sheet for further analysis.

                      Once you have your list of companies, the next step is ranking them based on their ROIC and earnings yield. Use Excel’s rank function to assign ranks to each metric. After ranking, add up the ranks to derive a combined score that reflects both the earnings yield and ROIC. The companies with the lowest total rank are your best candidates for investment.

                      With your ranked list in hand, it’s essential to conduct a thorough analysis of each company. Look for any “shady” companies that might not align with the quality standards outlined in the Magic Formula. For instance, while a company may appear at the top of the list, further investigation might reveal potential red flags.

                      As emphasised in the rules, it’s crucial to rebalance your portfolio annually. This involves selling off underperforming stocks and maintaining a long-term investing outlook. Adhering to magic formula investing over a 5 to 10-year horizon can help mitigate short-term volatility and potentially yield higher risk-adjusted returns.

                      Disadvantages of the Magic Formula

                      While the Magic Formula presents a structured approach to systematic value investing, it’s not without its drawbacks:

                      • Return Expectations: The promised 30% CAGR may not be replicable in the current market environment, particularly in India.
                      • Complexity of Smaller Companies: Some smaller market cap companies may have less transparent financials, making them harder to analyse.
                      • Market Conditions: The formula tends to outperform during bullish markets but may lag in bearish conditions.

                      Conclusion

                      Joel Greenblatt’s magic formula is a time-tested value investing strategy that simplifies stock picking for long-term investors. By focusing on high earnings yield and return on capital, the formula helps investors find good companies at reasonable prices. The nine rules of the formula make it easy to implement, even for beginners, and the strategy has been backtested successfully in both the U.S. and Indian markets.

                      If you’re looking for a simple yet effective stock-picking method, the magic formula could be a great starting point for your investment journey!

                      Watch: How To Spot Hidden Stock Gems: Easy Value Investing Screener

                      Disclaimer: We are not SEBI-Registered Investment Advisors. The investment strategy mentioned in this article is purely for educational purposes. Please do your own research before investing!