Beginning to Trade Long and Short Positions on the Stock Market

When traders begin to practice for the first time, they are hesitant on the use of stockbrokers for making their trades. “Why should I use them? I know how to trade”, they say. And yet, not more than 1% f the newcomers ever break even let alone make a profit. It is not that they do not know how to trade but that they have not developed a feel of the market yet.

Largest financial institution

The stock market is the biggest monetaryorganization with over $5 trillion in cash transaction every day! Does this mean it is bigger than the government? Yes, even governments come to the stock market to buy and sell shares and stock. It is open for five and a half days a week, resting only during the weekend, for the trading operations. So, what goes on here?

In a simple sentence, traders conduct trades here. Who are these traders? They are anyone like you and me but sometimes it may be multinational corporations, governments, financial institutions, trading houses, and brokers. You have thousands of Stockbrokers in India waiting with eagerness for the stock market to open on Monday morning.

Make money two ways

The normal rule for the stock market is to buy low and sell high. This makes you a profit, right? Well, let us see this in more detail. Suppose you buy 100 shares of Wockhardt. It means you are long 100 shares. This is a long position where you have paid the money in full for the stock and own it outright. Suppose there is a person who sells 50 shares of Axis Bank. He is short 50 shares and he owes the 50 shares that he must settle.

The brokerage firm where the trader has his trading account will often lend the shares to finalize the delivery with a margin account. The trader will buy the shares at a lower price than the market price in the hope that the price of the commodity will fall and he will make a profit. This may happen and the trader who sells short will make a profit by selling at a lower price.

Long and short positions

You can also indulge in options trading where the contract has a different meaning. You can get these from the Stock brokers in India and try to make money. Here you have a call or put option and when the investor buys these options he occupies a long position. This is because he retains the right to buy or sell the security to the writing investor. This is the opposite of selling the call or put options for the shares because now the writer must now buy the shares. This is now a short position.

Open a trading account with the licensed stock broker to avail of these facilities. At times, the investor will establish both a sell and a buy position to leverage the income on a security. You can get advice on these from your full-service stock brokers. If you do not need advice, you can use the service of the discount brokers as they are cheaper.