Trading of Stocks Flashcards
What is a Long Position?
Buy and Hold
*Refer to graph in notes
What is Contra Trading?
3
1) Buying a security and selling it before settlement.
2) No cash outlay: Only pay loss or receive profit
3) On par with major markets such as US, UK, Canada, Japan, Hong Kong
What is Margin Trading?
Borrow cash to buy securities and use the securities as collateral
What is Short Selling?
4
Selling without owning.
1) When price falls, buy back and takes profit
2) Involve borrowing the shares (with a charge)
> Need to borrow the share first before short-selling
3) Proceed from short sales is not paid to short sellers but kept as collateral (Usually they are non-interest earning)
4) Short sellers have to pay dividends
What is Initial Margin?
50%
- The proportion of market value that investor must pay as an equity share
What is Margin maintenance
The minimum proportion of equity (relative to market value) in the investor’s margin account below which the investor will receive a margin call.
Why is Short selling risky?
Limited upside potential and unlimited downside risk
- In the past, there were restricitons on short selling
> Uptick
> Zero-plus tick - But they were subsequently lifted
- As a result of the current crisis, several markets have re-implemented various restrictions