Pages

Thursday, December 08, 2005

Margin Trading - Short-selling

"Going short" is the opposite of buying long and investors do it when they expect the price of a stock to fall in the short run and profit from this drop. Lets say, you tell your broker you want to short-sell 100 shares of Tata Tea which are currently priced at Rs 40 each. This quarter's results of the company aren't encouraging enough and you are convinced the stock price will take a beating within a few days. The broker looks for someone who has 100 shares of Tata Tea and borrows them on your behalf for a short period and with the guarantee that you will return them in few days. You in turn sell these borrowed shares at Rs 40 each and hence get Rs 4,000. Now, if what you had hoped for does happen, and the price of the stock falls to say, Rs 20 after two days, you will do what is called "cover the short position". That means you buy back the 100 shares by spending Rs 2,000 and your broker in turn returns them to the person borrowed from. So, by short-selling you have earned Rs 2,000 (of course, slightly less after adjusting for the transaction costs and expenses for borrowing the stock). The advantage of selling short is that you get to sell borrowed stocks without putting in your money.

Short selling can be perilous. Suppose if the Tata Tea shares fall but only do so marginally, you might just be able to recover your money. Or if the shares take a much longer time to reach the Rs 20 level than you had hoped for, your interest on the money with which the broker had borrowed those shares will surmount. Additionally, there will be constant pressure from the lender to return the stocks. Worse still if instead of falling the stock price rises, you will immediately enter into a loss.

Both short-selling and buying long require a good reading of the market and correct timing.

2 comments:

lisaerickson25307762 said...

Make no mistake: Our mission at Tip Top Equities is to sift through the thousands of underperforming companies out there to find the golden needle in the haystack. A stock worthy of your investment. A stock with the potential for big returns. More often than not, the stocks we profile show a significant increase in stock price, sometimes in days, not months or years. We have come across what we feel is one of those rare deals that the public has not heard about yet. Read on to find out more.

Nano Superlattice Technology Inc. (OTCBB Symbol: NSLT) is a nanotechnology company engaged in the coating of tools and components with nano structured PVD coatings for high-tech industries.

Nano utilizes Arc Bond Sputtering and Superlattice technology to apply multi-layers of super-hard elemental coatings on an array of precision products to achieve a variety of physical properties. The application of the coating on industrial products is designed to change their physical properties, improving a product's durability, resistance, chemical and physical characteristics as well as performance. Nano's super-hard alloy coating materials were especially developed for printed circuit board drills in response to special market requirements

The cutting of circuit boards causes severe wear on the cutting edge of drills and routers. With the increased miniaturization of personal electronics devices the dimensions of holes and cut aways are currently less than 0.2 mm. Nano coats tools with an ultra thin coating (only a few nanometers in thickness) of nitrides which can have a hardness of up to half that of diamond. This has proven to increase tool life by almost ten times. Nano plans to continue research and development into these techniques due to the vast application range for this type of nanotechnology

We believe that Nano is a company on the move. With today�s steady move towards miniaturization we feel that Nano is a company with the right product at the right time. It is our opinion that an investment in Nano will produce great returns for our readers.

Online Stock trading, in the New York Stock Exchange, and Toronto Stock Exchange, or any other stock market requires many hours of stock research. Always consult a stock broker for stock prices of penny stocks, and always seek proper free stock advice, as well as read a stock chart. This is not encouragement to buy stock, but merely a possible hot stock pick. Get a live stock market quote, before making a stock investment or participating in the stock market game or buying or selling a stock option.

edwardflynn94910293 said...

I read over your blog, and i found it inquisitive, you may find My Blog interesting. My blog is just about my day to day life, as a park ranger. So please Click Here To Read My Blog