Trading of Stocks Flashcards

1
Q

What is a Long Position?

A

Buy and Hold

*Refer to graph in notes

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2
Q

What is Contra Trading?

3

A

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

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3
Q

What is Margin Trading?

A

Borrow cash to buy securities and use the securities as collateral

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4
Q

What is Short Selling?

4

A

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

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5
Q

What is Initial Margin?

A

50%

- The proportion of market value that investor must pay as an equity share

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6
Q

What is Margin maintenance

A

The minimum proportion of equity (relative to market value) in the investor’s margin account below which the investor will receive a margin call.

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7
Q

Why is Short selling risky?

A

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
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