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Short Selling
S.Mutaga III
#1 Posted : Monday, October 08, 2012 11:50:04 AM
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Joined: 3/26/2012
Posts: 830
I think it is time the CMA enabled short selling in nse.This would make investing a double edged sword...making money in both bulls and bears.I just imagined if an institution or a high networth individual had shorted KQ...they would have made a windfall in the process. Also,supposing Puma pulled out in the last minute...a tidy sum could be made...but shorting is for speculators.
A successful man is not he who gets the best, it is he who makes the best from what he gets.
maka
#2 Posted : Monday, October 08, 2012 12:57:19 PM
Rank: Elder


Joined: 4/22/2010
Posts: 11,522
Location: Nairobi
S.Mutaga III wrote:
I think it is time the CMA enabled short selling in nse.This would make investing a double edged sword...making money in both bulls and bears.I just imagined if an institution or a high networth individual had shorted KQ...they would have made a windfall in the process. Also,supposing Puma pulled out in the last minute...a tidy sum could be made...but shorting is for speculators.

...our market needs to develop further first...
possunt quia posse videntur
charming soul
#3 Posted : Monday, October 08, 2012 1:28:42 PM
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Joined: 12/2/2006
Posts: 42
Hey S. Mutaga III care to explain how short selling works please.
StatMeister
#4 Posted : Monday, October 08, 2012 1:38:25 PM
Rank: Veteran


Joined: 5/23/2010
Posts: 868
Location: La Islas Galápagos
S.Mutaga III wrote:
I think it is time the CMA enabled short selling in nse.This would make investing a double edged sword...making money in both bulls and bears.I just imagined if an institution or a high networth individual had shorted KQ...they would have made a windfall in the process. Also,supposing Puma pulled out in the last minute...a tidy sum could be made...but shorting is for speculators.


A profitable 6-m trade would require prices to dip at least 20% to accommodate 4.1% trading commission, risk premium (say 5%) and interest rates (10%).
A bad day fishing is better than a good day at work
S.Mutaga III
#5 Posted : Monday, October 08, 2012 2:47:11 PM
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Joined: 3/26/2012
Posts: 830
@charming soul...i will explain with an example for clarity...suppose I come to your house and find your new t.v which you can return to the seller at 40000...I borrow it and take it back to the store and receive the 40k...and then I go across the road and buy an identical t.v at 30k and return it to your house...i will profit 10k in the process...now substitute the t.v with a stock of company X,the original seller being Mr.Market at a high price,the buyer being Mr.Market at a low price.
A successful man is not he who gets the best, it is he who makes the best from what he gets.
ChessMaster
#6 Posted : Monday, October 08, 2012 3:24:47 PM
Rank: Elder


Joined: 2/23/2009
Posts: 1,626
Maka I think you're right. Even though short selling is profitable is makes the bear runs hit new lows because the lower it goes the more profitable it gets.Can really damage our markets sense of 'stability'.
Uncertainty is certain.Let go
S.Mutaga III
#7 Posted : Monday, October 08, 2012 3:34:50 PM
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Joined: 3/26/2012
Posts: 830
If it was to be introduced,the seasoned investor would become a true hybrid,even if he deals in stocks only. Apparently,more money would be drained from Wanjiku,but that is the small price she will have to pay for her ignorance.For me,I see real opportunity,a time to mint cash before wanjiku learns the trick and competition sets in. Am not inhuman...its business.
A successful man is not he who gets the best, it is he who makes the best from what he gets.
S.Mutaga III
#8 Posted : Monday, October 08, 2012 3:54:36 PM
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Joined: 3/26/2012
Posts: 830
Shorting has its own advantages...some investors are good in identifying bad,overvalued companies which produce unnecesary goods or services than they are in identifying good undervalued companies. If it was possible,people would have made money in the bear market last year. It is simply like the way a 24hr store works...making money day and night.
A successful man is not he who gets the best, it is he who makes the best from what he gets.
ChessMaster
#9 Posted : Monday, October 08, 2012 3:55:16 PM
Rank: Elder


Joined: 2/23/2009
Posts: 1,626
Then you really don't have to worry,people are greedy but not for knowledge and wazuans know very well a fool and his money.....
Uncertainty is certain.Let go
ProverB
#10 Posted : Monday, October 08, 2012 3:58:21 PM
Rank: Veteran


Joined: 3/12/2010
Posts: 1,199
Location: Eastlander
[quote=Brigitte Yuille]

Short Selling: What Is Short Selling?


First, let's describe what short selling means when you purchase shares of stock. In purchasing stocks, you buy a piece of ownership in the company. The buying and selling of stocks can occur with a stock broker or directly from the company. Brokers are most commonly used. They serve as an intermediary between the investor and the seller and often charge a fee for their services.
When using a broker, you will need to set up an account. The account that's set up is either a cash account or a margin account. A cash account requires that you pay for your stock when you make the purchase, but with a margin account the broker lends you a portion of the funds at the time of purchase and the security acts as collateral.

When an investor goes long on an investment, it means that he or she has bought a stock believing its price will rise in the future. Conversely, when an investor goes short, he or she is anticipating a decrease in share price.

Short selling is the selling of a stock that the seller doesn't own. More specifically, a short sale is the sale of a security that isn't owned by the seller, but that is promised to be delivered. That may sound confusing, but it's actually a simple concept. (To learn more, read Benefit From Borrowed Securities.)

Still with us? Here's the skinny: when you short sell a stock, your broker will lend it to you. The stock will come from the brokerage's own inventory, from another one of the firm's customers, or from another brokerage firm. The shares are sold and the proceeds are credited to your account. Sooner or later, you must "close" the short by buying back the same number of shares (called covering) and returning them to your broker. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. If the price of the stock rises, you have to buy it back at the higher price, and you lose money.

Most of the time, you can hold a short for as long as you want, although interest is charged on margin accounts, so keeping a short sale open for a long time will cost more However, you can be forced to cover if the lender wants the stock you borrowed back. Brokerages can't sell what they don't have, so yours will either have to come up with new shares to borrow, or you'll have to cover. This is known as being called away. It doesn't happen often, but is possible if many investors are short selling a particular security.

Because you don't own the stock you're short selling (you borrowed and then sold it), you must pay the lender of the stock any dividends or rights declared during the course of the loan. If the stock splits during the course of your short, you'll owe twice the number of shares at half the price.

Read more: http://www.investopedia....ing1.asp#ixzz28iC0F88a.[/quote]
..Let your light so shine before men, that they may see your good works, and glorify your Father which is in heaven...Matt5:16
- 1769 Oxford King James Bible 'Authorized Version
ChessMaster
#11 Posted : Monday, October 08, 2012 4:02:52 PM
Rank: Elder


Joined: 2/23/2009
Posts: 1,626
I'm for short selling but it has many disadvantages and loopholes for manipulation especially for our market.We have to look at the bigger picture.A lot of people have run away from the market ever since the safcom ipo shortselling would be very profitable for the some investors but can cripple the market even further.
Uncertainty is certain.Let go
S.Mutaga III
#12 Posted : Monday, October 08, 2012 4:10:29 PM
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Joined: 3/26/2012
Posts: 830
I think the main downside,is that for it to become profitable,it requires a lot of negative information about a company,which is not readily available in their website(investor relations)...so one has to have prior information probably from an insider,but we all know how hard this is,because junior employees know less about their company than the average broker...the ones on the board are unreachable,and are the ones abreast with all major announcements.
A successful man is not he who gets the best, it is he who makes the best from what he gets.
ChessMaster
#13 Posted : Monday, October 08, 2012 4:20:50 PM
Rank: Elder


Joined: 2/23/2009
Posts: 1,626
Negative information is easily spread through rumors because I don't think the stock market is completely logical. And another thing short selling is self perpetuating. Basically if the price starts to go down,people get scared and start selling and others start shorting and others sell....you see the cycle.
Uncertainty is certain.Let go
ProverB
#14 Posted : Monday, October 08, 2012 4:41:24 PM
Rank: Veteran


Joined: 3/12/2010
Posts: 1,199
Location: Eastlander
Before the collapse of Ngenye, Thuo and other brokerages.. it was widely speculated that brokers actually did "illegally" short sell..
..taking shares of a dormant investor..selling them during fall in prices..and buying back the same amount of shares at lowest possible price and pocketing the "profit"...the investor wouldn't get any wiser.. assuming his shares where always there..

Short trading is an efficient way of profiting on
price fluctuations..

you can actually test it on wazua's fantasy market.
..Let your light so shine before men, that they may see your good works, and glorify your Father which is in heaven...Matt5:16
- 1769 Oxford King James Bible 'Authorized Version
ChessMaster
#15 Posted : Monday, October 08, 2012 4:41:25 PM
Rank: Elder


Joined: 2/23/2009
Posts: 1,626
Imagine if an individual or better yet a large corporation holds a big stake in a company.They decide to offload a large quantity of the stocks at a lower price just enough to push the counter down and invite short sellers. They start trading on the hopes of the price going down which it might and the initial group comes back and buys its shares and some more at a cheaper price. The potential for manipulation is high.
Uncertainty is certain.Let go
ChessMaster
#16 Posted : Monday, October 08, 2012 4:54:19 PM
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Joined: 2/23/2009
Posts: 1,626
ProverB,I can't prove it but I've heard the same thing.Some from very close quarters. The targets we're usually individuals who were holding shares for the long-term and didn't follow up on the money.As i heard. I can't deny its profitability.
Uncertainty is certain.Let go
S.Mutaga III
#17 Posted : Monday, October 08, 2012 7:40:14 PM
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Joined: 3/26/2012
Posts: 830
Take longhorn for instance,the company reported above average earnings and hence the directors decided to hit the iron when hot by listing through introduction. Subsequent results only prove that last years spectacular earnings were a one-off,and so the share price is dropping in slow-motion...this is an ideal stock to have shorted especially at 18 from a high of 20 on its way down.
A successful man is not he who gets the best, it is he who makes the best from what he gets.
eboomerang
#18 Posted : Monday, October 08, 2012 8:56:36 PM
Rank: Member


Joined: 6/27/2011
Posts: 301
Location: Nairobi
S.Mutaga III wrote:
I think it is time the CMA enabled short selling in nse.This would make investing a double edged sword...making money in both bulls and bears.I just imagined if an institution or a high networth individual had shorted KQ...they would have made a windfall in the process. Also,supposing Puma pulled out in the last minute...a tidy sum could be made...but shorting is for speculators.

I think it would be a bad idea to allow or enable short selling in Kenya. Our market regulator(s) and legal institutions are still too weak to curb the amount and magnitude of insider trading that would occur.

I assume there is enough of it (insider trading) already albeit the fact that short selling is not allowed. It remains a banned practice in most advanced markets.
ChessMaster
#19 Posted : Monday, October 08, 2012 9:19:07 PM
Rank: Elder


Joined: 2/23/2009
Posts: 1,626
In such a situation short selling is ideal to reflect the true value of the company because it's not based so much on speculation.
Uncertainty is certain.Let go
maka
#20 Posted : Monday, October 08, 2012 9:54:51 PM
Rank: Elder


Joined: 4/22/2010
Posts: 11,522
Location: Nairobi
Will need so many facilities to be put in place e.g securities lending firms to help in covering short positions,central counterpaties to avoid settlement fails etc,the CMA Act will also require various ammendments its a long shot for now,lets deal with the traditional equity and bond trading that we are used to for now...but in due time you,l be shorting all the way to the bank.
possunt quia posse videntur
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