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When Does Short Selling Result in Loss?
When a trader predicts wrongly about the declination of share prices, they stand to lose infinitely.
The term "infinite risk" particularly applies to short selling where the modus operandi is "sell high and buy low".
When is Short Selling Profitable?
Short selling is profitable when a trader speculates correctly, and share prices do fall below the market price at which a trader sold short.
In that case, a trader gets to keep the difference between the selling price and purchasing price as profit.
What is Short Selling and How Short Selling Works?
Short selling, as opposed to a long position, is an investment strategy with the underlying motive of "buying low and selling high".
Investors, who short sell stocks, expect share prices to drop on a future date and aim to capitalize on this prediction.
⚠️Since it depends on speculation and entails infinite risk theoretically, only seasoned investors partake in short selling.
🏬 To short stocks, traders sell shares that they do not own but are instead borrowed from a broker-dealer, thus opening a position. They sell it at the prevailing market rate, thus shorting the position and waiting for prices to drop.
🛑Eventually, traders need to buy back those stocks they sold short to close such a position.
🔽If prices do drop, traders make a profit from the difference between the selling price and the purchasing price.
⚠️However, if such a prediction for price declination does not realise and share prices move upward instead, the concerned trader stands to lose.
Hedging:
Apart from speculation, investors and fund managers also use short selling to hedge the downside risk of holding a long position on securities or any related ones.
💰To sell short, traders need to have a margin account using which they can borrow stocks from a broker-dealer.
💲 Traders need to maintain the margin amount in that account to continue keeping a short position.
😳 However, a margin account is only applicable when an investor is borrowing stocks from a broker. Margin account does not apply to investors or fund managers who hedge their long position against any downside risk.What is the Difference between LONG POSITION & SHORT SELLING?
Long position is the traditional approach to trading in the stock market and making a profit out of it is through "buying low and selling high"
🐮It is an approach primarily adopted by investors in a bullish market when prices of stocks are expected to rise.
🐻Contrarily, a short position is adopted in a bearish market when share prices are expected to decline.
SHORT SELLING:-
🔽Short selling is one of many investment strategies in which an investor bets on a stock or assets in the expectation that its price will fall in the future.
↔️ The investor then borrows (rather than purchasing) shares of stock/ asset from lender and sells them in the market
THE TRENDING NEWS ON FPO AS ON DATE IS ADANI,ITS GMP RATES ARE SHOWN BELOW
Now Question will arise🔽
What is the Difference between IPO and FPO?
🧡IPO stands for Initial Public Offering, a process in which a private company goes public by issuing shares to the general public for the first time.
👉This is a relatively high investment since the investor does not have the opportunity to track the previous stats or records of the particular company to analyze before investing.
💚But FPO is used by an already listed company in the stock exchange.
😊This helps the investors to see the market trends and track their investments before making a decision.
Note:
IPO’s are generally used by private entities to expand their funds, and FPO’s are used by government entities to cover their debts or reduce their stake in the company.
Should You Subscribe For an FPO?🤔
🌟FPO is generally considered an advantage compared to IPOS because investors get an idea about the company's management, business practices, and potential growth.
🌟The company listed on the stock exchange is not new, and investors will get the historical reference for its earnings report, the performance of the stock market, and much data to bank on.
🌟FPO tend to have less risk than IPO because the price fixed for an IPO is lower than the market price to attract shareholders to invest more in FPO.
🌟Several shareholders engage in the FPO to buy shares at a discounted market price and sell them in the market to gain a premium on their transaction.
😊A lot of research is required in FPO to know about the company and its past performance, but the degree of homework in FPO is a lot easier.
😊Hence it goes well for risky investors and gives them an opportunity to access shares of a company at a discounted price
What Happens in an FPO?🤔
😊The share price issued in an FPO is lower than the prevailing market price.
The primary motive behind issuing shares at a lower price is attracting and getting more subscribers to its issue.
🙃However, lower demand of the share price instantly lowers the market price and levels it with the FPO issue price.
Types of FPO:
There are two different types which a company can conduct Follow on Public Offer (FPO):
1) Dilutive FPO
2) Non-Dilutive FPO
🔅Dilutive FPO
⭕️In dilutive FPO, the company issue additional number of shares but the price value of the company’s share does not changes and remains the same.
🙃This overall decreases reduction in earnings per share as well as the share price.
⭕️Here, the company’s board releases new share offerings to the public.
⭕️ However, an FPO is used by a company only to reduce the debt or to raise additional capital of the company.
Non-Dilutive FPO
🔆Non-Dilutive FPO means the shareholders of the company sell their private shares to the public.
💰 Here the money directly goes to the individual offering and not to the company.
😊Thus, the per-share earnings of the company does not get affected.
Why Does A Company Need an FPO?
A company needs a Follow on Public Offer to raise additional capital for several major reasons, and it is fulfilled by conducting a dilutive FPO where new shares are offered.
💰💰A large amount of money is generated.
What is FPO?🤔
FPO abbreviated as Follow-on Public Offer is a process in which an existing company listed on the stock exchange issue new shares to the existing shareholders or to the new investors.
↔️It is different from an IPO where the company issue its shares to its public for the first time to collect funds in order to grow their business.
▶️The reason behind the company performing an FPO is to expand its equity base.
▶️The company uses FPO only after the company has started the process of an IPO to make their shares available to the public and to raise capital for their business.
The FPO is raise basically for two major purposes:
1) To reduce the debt which is existing in a company
2) To raise additional capital for a companyNote:
All these patterns are explained in detail in this channel
Pls use the search button and type the info to learn moreThe Dow Patterns💹
Like in candlesticks, there are few important patterns in Dow Theory as well. The trader can use these patterns to identify trading opportunities.
✅The Double bottom & Double top formation
✅The Triple Bottom & Triple Top
✅Range formation
✅Flag formation
What is the goal of Dow’s theory?
The goal of the theory is to identify the primary trend in the financial market backed by solid proof. Once a trend is recognized, it is considered to continue until a turnaround is evident. It tells us that minor trends act as noises and do not imply trend reversal. The theory is concerned with movement direction and has little predictive value for the trend’s eventual duration or magnitude.
Three significant market trends: They are primary, secondary, and minor trends defined by their duration. Primary trends can be uptrend or downtrend lasting months to years, while secondary one moving opposite to the primary will last weeks or a few months. Minor trends are treated as insignificant variations lasting from a few hours to weeks, and they are not as important as the others.
Primary trends have three distinct phases: The different phases in bear markets are distribution, public participation, and panic. Bull markets
, on the other, have accumulation, public participation, and excess phase.
Stock market discount everything: The market indexes
react quickly to all forms of information. It can be related to the entity or economy
as a whole. For instance, any economic shock or issues in the company management will affect stocks and move the indices upward or downward.
Volume confirms the trend: Trading volume increases during an uptrend and decrease during depressions.
Indices confirm each other: Multiple indices moving in an identical pattern reveal a trend since they give the same signal. Whereas if two indices move in the opposite direction, it is difficult to deduct a trend.
Trends continue until solid clues imply the reversal: Traders should be aware of trend reversals. It’s easy to confuse them with secondary trends, so Dow cautions the investor to be careful and confirm trends with several sources before believing it’s a reversal.
