Leverages Strategies

Stock that a trader does not actually own may be traded using short selling, margin buying may be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sale.


Short selling
In short selling, the trader borrows stock (usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for the price to fall. The trader eventually buys back the stock, making money if the price fell in the meantime or losing money if it rose. Exiting a short position by buying back the stock is called "covering a short position." This strategy may also be used by unscrupulous traders to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most (but not all) stock markets.


Margin buying
In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value. In the United States, the margin requirements have been 50% for many years (that is, if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance margin below the $500). A margin call is made if the total value of the investor's account cannot support the loss of the trade. (Upon a decline in the value of the margined securities additional funds may be required to maintain the account's equity, and with or without notice the margined security or any others within the account may be sold by the brokerage to protect its loan position. The investor is responsible for any shortfall following such forced sales.) Regulation of margin requirements (by the Federal Reserve) was implemented after the Crash of 1929. Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased. Other rules may include the prohibition of free-riding: putting in an order to buy stocks without paying initially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-days are up) and using part of the proceeds to make the original payment (assuming that the value of the stocks has not declined in the interim).

How to open a demat account

hi
its long since my previous post..
ok
lets look at how to open a demat account
there are share brokers who can be government approved or private
any kind of these brokers will be able to open the demat account for u .
like opening some other bank account, u will need some minimum amount of shares in ur account ... also as we have discussed before .. u will need to pay to maintain such demat accounts ..

if u buy new shares they will be credited to ur account like bank deposits .. and if u sell shares they will be debited similar to ur withdrawal from a bank

more likely to bank, they provide u a slips for both selling and buying of shares namely ... Credit advice and Debit advice
it functions like a cheque with which u can use ur shares in the account to sell or buy shares from others

the account will provide u a unique id !! lets say .. a customer id
it distinguishes ur account from the rest of others
the advantage of demat account is that it causes dematerialisation of ur shares .. ie.. u need not carry ur shares in the form of papers
in olden days before demat account was available people had to buy shares in bulk say in forms of 50 s and 100 s ...
but now .. even a single share of some company can be bought with the demat account
so .. if u plan a way of subsidiary income u need to start a demat account
approach some share brokers and u can get the account opened for u !!!
good luck