What are short selling and margin buying?
Margin buying and short selling are theories used by skilled traders involved with the Indian Stock market. Both these are oppressed to their full potential mostly in intraday trading though the contract period varies especially in derivatives trading and the like.
It is significant to fully research and be aware of the stocks you shortlist before proceeding as great risk is involved.
What is short selling?
Short selling is a best trading strategy from a declining stock and securities. Short seller always disposes off the stock and securities at the current market price and buys it back later when the market price will fall. If a seller won’t have stock at the time, then he will borrow that stocks from someone who owns the stocks. Short seller buys back the stock at the lower price and then return it to close the loan. This is usually labelled under margin trading. This process usually involves an agreement with the broker.
What are the benefits of short selling?
One would generally opt for short selling either to make some effortless money or as a way of protecting one’s investment portfolio.Quick profits made this way can help balance any losses incurred in the Stock market in the recent past.
What is Margin buying and its benefits?
A margin account is necessary when short selling is on the cards as it allows you to buy and sell greater volumes in equity or commodity trading than would be possible on your own. If you have a margin trading account, your broker will lend you the remainder of the money while the stock you bought makes for the collateral on this loan.
Benefits of margin buying:
Considerable increase in earnings
Cash burden is very less
Better purchasing power
Just as the probability for profit increases, so does the risk for loss. Loss when trading with a cash account is restricted to the amount you have invested. With a margin account, your risk extends to the amount loaned to you.
Short selling and margin buying are both vital to the smooth functioning of the Stock market. They provide the liquidity essential to maintain the market.