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Making the proper analysis
We sometimes hear about company that it is on the bottom line. But hardly we make an analysis why the company is in bottom line. This could due to the bad leadership of the management. Quality of product may deteriorate, poor marketing and may be due to ineffective sales. The reason may be the outdated technology or products which are nowadays not in demand. When we know that the company is in bottom line we would not like to buy stocks of such a company. Even if we know something having stocks of such a company perhaps we will tell them not to continue with the stock. We may advice then to sell these stocks as soon as possible. But if we want to personally benefit from the information we are having we would sell these stocks short of course. This is known in financial term as short selling. It is always the best advice to go for stock market consultants to benefit from the market.
Now the question arises basically what is short selling? Short selling is nothing but the selling of stocks that we (the sellers) do not own. Now the question comes to our mind how it can be accomplished? Without having ownership of these shares how can we sell it? The answer is that the broker will lend us the shares of these stocks from their inventory. The task we have to do is at some point the “short” position have to be closed by us by buying back some of the shares of the company. We will get profit from the difference (If we assume that the price drops). But if we are on the wrong track and if the prices of the stock goes up then we have to buy the shares at a higher price. You should always try to gather much information on BSE, NSE…etc.
In general, there are no time restrictions of how long we can keep a short position or have to sell the stocks short. But still we have to keep in mind something. We have to be aware that if we keep it for long time this will cost us more because the stock were bought using margin. Margin means the brokerage money and again there is an interest associated with borrowed fund. We have not bought it.
Why the investors or traders sell stock short? There are two reasons behind it. The first reason is the speculation. The traders or investors feel that the stock of the company is overvalued and it is likely to go lower in the short term. They think that prices of the share will go down and down. The second reason is hedge. The investors wish to minimize the losses in case if they made the wrong call. So, you have come to know stock market short selling - How do you know which stocks to sell?
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