--%>

Is this possible to make money in the stock market

Is this possible to make money in the stock market while the quotations are going down? And what is credit sale?

E

Expert

Verified

Three easy moves are here to make money while prices are going down: futures sale, purchase of put options and credit sale. Credit sale of a share means borrowing this and sell this afterwards. For case in point, we sell the share today at a specific price as €10 but we owe a share to the institution that lent this to us. If the quotation of the share goes down to 8 Euros the following week, we buy the share and provide it back to the institution which borrowed it to us and cancel out our position. In such case, we will have earned 2 Euros (the 10 Euros we earned by the sale of the share minus the 8 Euros we paid to buy this).

Meanwhile, obviously, we will owe a share to the institution that lent this to us and they will ask for several guarantees to cover the debt. Futures sale is very the same to credit sale but with the advantage which, normally, the guarantees demanded are lower. For illustration, an investor who sold a futures contract on the IBEX 35 at Friday 18th of January, while this was at 13,900 points, and closed his position with buying a futures contract the same to the one he sold on Monday 21st, when this was at 12,700, would have earned 12,000 Euros. The computation is a lot easier: 10 Euros for a point. The price fell through 1,200 points and, thus, the investor gained 12,000. But when the IBEX 36 had gone up, the investor would have lost 10 Euros for all points.

   Related Questions in Corporate Finance

  • Q : Is the market risk premium a parameter

    Is the market risk premium a parameter, for the world economy or for the national economy?

  • Q : Road King Trucks Project I want to know

    I want to know how much do you charge for doing the project?

  • Q : Commercial bank problems For an

    For an enhanced understanding of banking industry, it is significant to look at the atmosphere in which commercial banks operate. Production growth and globalization are two main forces reshaping the banking industry nowadays. The following two questions are associate

  • Q : Case Study 2 You have joined Zurich

    You have joined Zurich Pvt. Ltd as a Finance manager. You are given the following information: Zurich Pvt Ltd. is a diversified manufacturing firm dealing with electrical appliances. In 2012, the firm reported an operating income of Rs. 857.60 million and faced a tax rate of 35% on income. The firm

  • Q : State Exploitation of favorable market

    Exploitation of favorable market conditions: The firms after estimating WCR are in a position to clearly identify their status of excess current assets. After this realization they can use this knowledge to encash conditions arising in market even for

  • Q : Determine the future value What would

    What would the future value after 5 years of $100 be at 10% compound interest?

  • Q : How can optimal capital structure be

    How can optimal capital structure be calculated?

  • Q : Problem on binomial option pricing model

    The share price of Cheung Kong (Holdings) Limited is currently at $100. Over each of the next two three-month periods, you expect its price will either increase by 10% or fall by 10% in each three-month period. If the Hong Kong interbank offered rate is 8% per annum w

  • Q : Define the term Stock Market crash

    Stock Market Crash was responsible for the Great Depression. Middle class families lost all their savings as they had gambled the market on margin.Those banks which were under the loan ofbrokers’ started removing money out of the savings account

  • Q : Calculating the Cost of Equity You are

    You are an analyst in the financial division of Flipper Industries (FI) which has a beta of 1.80 (you are risk-philic, so you enjoy the thrill of working somewhere so risky). The company just paid a dividend of $1 and dividends are expected to grow at 5% per year. The