American Stock Market, US Stock Market, American Share Market

i. Bonus shares
If the company is sitting on a huge reserve, it rewards its shareholders by an issue of bonus shares. Bonus shares are additional shares allotted to existing shareholders at no cost to them. Since there is a nil purchase cost attached to bonus shares, you are able to reduce the cost of investment to that extent. Bonus shares are issued by converting the existing reserves or a part of it into capital. Thus it increases the capital base.
Example
You are holding 1000 shares of Company ABC. The company issues a bonus of 1:2. This means that for every two shares that you hold, you are allotted one bonus share. In other words, post bonus, your holding will rise to 1500 shares (1000 original shares + 500 bonus shares)…
Now, assume that your purchase cost was Rs 1,00,000 for the original 1000 shares. Post the bonus your holding has risen to 1500 shares. However, your purchase cost remains the same i.e. Rs 10,000. This is because bonus shares are issued free of cost. Therefore, your cost of purchase per share from the earlier Rs 100 (Rs 10,0000 / 1000 shares) stands reduced to Rs 67 (Rs 10,0000 / 1500 shares).

ii. Rights issue
A company announces a rights issue when it is in need of fresh capital and wants to raise it from the existing shareholders of the company. Rights shares are allotted to the existing shareholders at a discount to the existing market price.
Example
You are holding 1000 shares of the company ABC and the current market price of shares is Rs. 50. The company comes out with a rights issue of 1:5 at Rs. 40. It means that you are entitled to receive 1 share for every 5 shares held by you and you will have to pay Rs. 40 per share for that. Thus you are entitled to a total of 200 shares (1*1000/5) at a total additional cost of Rs. 8000 (Rs. 40*200).

As a shareholder, you have the right to renounce the rights if you do not wish to invest more in the company, as you are uncertain of the company’s future growth potential.

iii. Stock splits
Shares have a par value or face value. When the face value of shares is sub divided into smaller denomination, it is called stock split. A company generally resorts to stock split when the existing market price of its shares rises to significant levels. Stock split leads to adjustment in price of the shares and also increases the number of shares available in the stock market. This adds to liquidity and allows investors to buy shares at lower prices.
Example
Par value of shares of Company ABC is Rs. 10 and the current market price is Rs. 3000. The company decides to go for stock split in the ratio of 10:1. It means each share of Rs. 10 will be split into 10 shares of Rs. 1 each. The base price of the scrip will be adjusted to Rs. 300 on Ex-date (Rs. 3000/10). The number of shares available for trading will also increase ten times and hence more liquidity will be infused in market.

Have you come across a situation when you knew that the share price of a company is going to fall today? If yes, then, why not profit from such a scenario by undertaking short selling. Short selling means selling shares that you do not hold in your demat account. Suppose scrip ABC Limited is trading at Rs. 150 and you expect the share price to fall down during the day. You can sell 100 shares of ABC at Rs. 150 at a total transaction value of Rs. 15000 without having shares in your account. If the price of share falls to say Rs. 145 during day, you can place a buy order of 100 shares earlier short sold by you and make a profit of Rs. 500 in the bargain.

If however suppose the share price rises to Rs. 160 and you have short sold, you will have to square up your position and incur a loss of Rs. 1000 as per the above example…

You can sell short in the stock market. As transactions are netted only at the end of the day, you have time till the end of the day to square up your position, which means to buy back shares sold by you. Short selling will get impetus once the securities borrowing and lending mechanism as approved by SEBI comes into force as in that case, you need not square up your position. You may borrow shares from lenders by paying certain fees, give deliveries to the exchange for shares sold by you and buy back when market moves as per your expectation. Once you buy back, you can deliver shares back to the lenders and make a cool profit in the bargain. Short selling has recently been allowed for institutional investors such as foreign institutional investors ((FIIs), banks etc.

Risks of undertaking short selling
• The price of the scrip may move up leading to you having to incur loss for buying back at higher levels.
• If the price moves up sharply and hits the upper price band (it means that there are no sellers and only buyers) and you are not able to square off, your position will be auctioned/closed out leading to significant losses and penalties imposed by stock exchanges.
• Short selling requires quick decisions and ability to cut losses when market moves against you. It is not a good strategy for those who are not willing to take risks.

Short selling as a trading strategy is good for those who are constantly monitoring the market and those who can take risk. Traders who have a pulse of the share market and who are able to identify an early trend can benefit from short selling.

Dow jones precious metals index is ideal for those who want to track performance of companies engaged in exploration and production of precious metals. Thus if you want to get the benefit of rising global prices of commodities such as gold, silver, diamond and platinum, you can invest in precious metals index of dow jones. This index is a true reflection of price movements of commodities and companies constituting this sector and can be as well regarded as a great alternative way of being a part of this sector.

The uniqueness of precious metal index is that companies need to be engaged in the gold mining sub sector or platinum and precious metals sub sector to constitute a part of the index. Securities also need to be listed in U.S. Capital Stock market and liquidity of stock has to be pretty high to avoid inclusion of penny stocks and low cap companies in the precious metals index. The index thus avoids the possibility of any manipulation. Well capitalized stocks make sure that index is a healthy reflection of the state of affairs of this sector.

Dow Jones precious metals index was published in April 2002 and has given a annualized return of 18.83% since inception. There are 13 companies constituting the metals index and the highest and lowest weightage of a constituent is 21% and 0.17% respectively based on market capitalization.

Barric Gold Corporation is the biggest constituent of the Dow jones precious metals index. 10 out of 13 constituents belong to the god mining industry and the remaining 3 companies to platinum and precious metals industry. With the base value of 100 for the year 2000, index is calculated every 5 minutes during trading hours in the market. This almost real time measurement of index helps you keep a tab on your investment and see its value in a wonderful manner. The free float adjustment factor makes sure that the available stocks for trading are given due importance while calculating the contribution to weightage of the metals index.

Dow jones metals and precious metals index is the property of Dow jones company Inc. and is a great way to see your investments in precious metals go up as the index values rise. While it is true that the performance of the metals index has not been great during last one year, the overall returns have been exceptional. So you can benefit from law of averages and reap the benefits when the precious metals sector sees some great action.