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Read to know why Nifty or any stock market in the world moves up and down.
As you can see today (16-Nov-2016 at 11.23 am) Nifty is at 8156.20 just 47 points up or 0.59% up from yesterday’s close.
This is the beginning of stability. Please refer my yesterday’s post where I had written not to panic as Nifty will soon get stable. As you can see sign of stability has arrived.
You see a simple thing called Human Psychology working here. People who wanted to go short have given their best. There is something called as risk management. You can’t sell your home and short Nifty right? That limit for maximum people if arrived then stability will come, then these same people will start booking profits.
How do traders who have gone short on markets book profits? They need to buy back what they have sold. Which directly means to invest money in stock markets.
For example those who have sold Calls may be in profits but those who have sold Puts may be in huge loss. Now they must be getting phone calls from their brokers to invest money as their trade is in loss and margin blocked over. Some will infuse more money in their demat account in hope of a recovery, some will not, and their broker will close their positions as soon as max margin block gets close to nil as a risk management measure.
Which means infusing or investing money into the stock markets. Many ask for collateral from their brokers to trade derivatives. These people will buy more stocks to increase their collateral margins so that brokers do not sell their shares at a loss to cover the damage as a risk control measure.
Similarly those who bought Calls will be in huge loss, and those who bought Puts will be in huge profits. They will see their Puts to take out profits and who pays them money? The traders who sold Puts.
If no shares were bought money is not invested in stock markets. just derivative trading is done. But if stocks bought to increase collateral or just to make a profit then yes money invested in stock markets and Nifty will rise if money invested is more than money withdrawn that time.
If everyone starts selling shares – the Nifty 50 stocks, Nifty will fall down fast. And if everyone starts investing in shares – the Nifty 50 stocks, Nifty will start to rise. If both buy and sell are almost same, stock markets will be stable that day. This happens 80% of the days. Please remember that this is applicable to all stock markets in the world not just in India.
Hope the logic of why stability comes in markets and why stock markets goes up and down is clear.
Please ask me questions or leave a comment below if you have any doubts.
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Dilip Shaw, Founder
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