MENTORING - General - Financial institutions 1 - Coggle Diagram
MENTORING - General - Financial institutions
Trading or investing is like a war. We have to go to the market to wage a war everyday to bring profits.
The war is between buyers and sellers. Precisely, the war is between you and the market.
So everyday you use your energy (that is capital) to wage the war with buyers OR sellers, when you are seller OR buyer respectively.
We are very small traders until you have the capacity to invest or trade with Rs 100 crore capital.
Because we do not have the power to move the market or move the price, we will just follow the big or large traders and investors.
PS: A long trade is buying first and selling later. A short trade is selling first and buying later.
PS: If a price goes up, long trade will be
and a short trade will be in loss.
PS: If a price goes down, a long trade will be in loss and a short trade will be
We should never never never lose money in the market. But it is impossible to not lose. No pain, no gain. So we should be ready to lose.
But we should always ensure that the loss should be minimal.
Our cost of doing business (stop loss) should not be more than our benefit.
How can we do this? This can be done by following the big investors or traders. How do we follow them?
Before following them, we should understand who they are!
An economy is run by production of goods and services. That is what we call the gross domestic product of that economy.
But how are goods and services produced. When companies invest money, goods and services get produced. So investing money in them is important.
In an economy, money runs or flows from savers to investors.
Savers are people who have money and are ready to
give for a return
. Investors are people or companies who do not have enough money and are ready to
give a return
While banks are primary vehicles to shift money from savers to investors, there are some other institutions which pool money from savers and invest directly.
The institutions are called institutional funds. They pool money from small savers or investors and in turn invest in the market to generate a good return.
The institutions are so powerful that they can topple governments.
These institutions are: (a) mutual funds; (b) insurance companies; (c) pension funds; (d) endowment funds; (e) sovereign wealth funds; (f) any large institution that is managing money for other people for a fee.
The institutions have the money, power and might to move the market.
These institutions invest in various assets in different geographies. Because they have huge pool of money.
If we follow these institutions in the market, we are always on the safe side. We can mostly make money with low risk.
Because these institutions have other people money, they are very careful about not losing that. They will do everything to minimise risk and maximise return.
So how do they minimise risk and maximise return. That is what we will learn in this course.
These institutions are called buy side institutions. There is other segment that is called the sell side.
These institutions are also called non-leveraged institutions. The other side is called leveraged institutions.