Short selling is like betting that the price of something will drop. They borrow shares from a broker and sell them right away at the current price. They hope the stock price drops so they can buy back the shares at a lower price. Then, they return the borrowed shares to the broker and keep the difference between the selling and buying prices.

Here's how it works:

Imagine borrowing a toy from a friend to sell it to someone else. You hope that by the time you have to give the toy back to your friend, its price will be lower, so you can buy it for less and return it. Short-sellers do this with stocks or other investments. They borrow them, sell them to someone else, and hope the price goes down so they can buy them back cheaper and return them. This is different from regular investors who want the price to go up.

Example of short selling

• Let's say you believe that XYZ Corporation's stock, currently priced at Rs. 7,000 per share, is overvalued and will decrease in the near future. You decide to short sell the stock.
• You borrow 10 shares of XYZ Corporation from your broker and sell them immediately at Rs. 7,000 per share, receiving Rs. 70,000 in total. Now, you're "short" 10 shares of XYZ Corporation.
• A few weeks later, XYZ Corporation announces disappointing earnings, causing its stock price to come down to Rs. 5,600 per share. You decide it's time to close your short position.
• You buy back the 10 shares of XYZ Corporation at the current market price of Rs. 5,600 per share, spending Rs. 56,000 in total.You return the 10 borrowed shares to your broker.
• So finally you made a profit of Rs. 14,000: (Sale proceeds of Rs. 70,000 - Purchase cost of Rs. 56,000 = Rs. 14,000), excluding any transaction fees or interest charges

Differences Between Regular Investing And Short Selling
‍

Pros of Short Selling:

1. Chance for Big Profits: If you predict that a stock's price will drop and you're right, you can make a lot of money from short selling.
2. Protection against a bear Market: Short selling can help protect you when the market isn't doing well. When stock prices are falling, short selling lets you still make money.
3. More Ways to Make Money: Short selling gives you another way to make money in the market. It adds flexibility to your trading and can help you earn extra cash.

 Cons of Short Selling:

1. Unlimited Losses: When you short sell, your potential losses aren't limited. If the stock price goes up instead of down, you could end up losing more money than you put in.
2. You can not carry your position to next day and you will have to square of it same day only.
3. Missed Opportunities: While you're busy short selling, your money is tied up in that trade. This means you might miss out on other chances to make money elsewhere.

FAQs

1) How do I start short selling?

To short sell, you'll need to open a margin account with a brokerage firm. Once you have an account, you can place a short sell order for the desired stock through your broker's trading platform.

2) Are there any restrictions on short selling?

Some regulations may limit short selling, especially during times of market volatility. Additionally, not all stocks are available for short selling, as it depends on the availability of shares to borrow.

In finance, The efficiency or convenience with which a security or asset can be turned into quick cash without negatively impacting its market price is referred to as liquidity.

High liquidity means it's easy to turn an asset into cash at its expected value or market price. Low liquidity means there aren't many chances to buy and sell, making assets hard to trade.

Cash is the most liquid asset, followed by stocks, bonds, and real estate, which vary in their liquidity levels. Cash can be readily spent or invested, while stocks and bonds can be sold quickly. Real estate, however, takes longer to sell due to its illiquidity.

What does "liquidity" mean when we talk about the stock market?

Well, it's all about how easy it is to buy and sell stocks without affecting their prices too much. Higher liquidity stocks will have a sufficient number of outstanding shares as well as a suitable supply and demand. It's the quantity of consumers and sellers that are present in a market, to put it simply.

But smaller companies, especially those traded on smaller exchanges, can be trickier. They're not traded as much, so there's a bigger gap between what buyers are offering and what sellers want. When more people suddenly want to buy or sell these stocks, their prices can swing wildly. That's the basic idea of liquidity in the stock market.

Importance in financial markets:

Liquidity is likewise important for investors, as it influences the price they will pay when purchasing stocks or ETFs and Stock liquidity is crucial since it dictates how soon you can enter or exit a trade. High liquidity also means lesser risk because there is a greater chance that someone will take the opposite position in the transaction.

For businesses, understanding their liquid assets is important as these funds are required to settle any pending bills or debts. To figure out if a company or person has enough cash to pay their bills, you can compare their assets to their debts. If their assets are higher, they're solvent, which means they can pay their debts and still have some cash left over.

Types of Liquidity:

• Accounting  Liquidity: Accounting liquidity quantifies how easily a person or business may pay off debts when they become due by using their liquid assets to meet their financial commitments.
• Market Liquidity: The degree to which assets can be purchased and sold at steady, transparent prices on a market—like the stock market of a nation or the real estate market of a city—is referred to as market liquidity.

Conversely, greater market liquidity is a feature of the stock market. A buyer's bid price (the price per share) and a seller's ask price (the price they are willing to accept) will be quite close to each other if an exchange has a significant volume of transaction that is not dominated by selling.

For example, big stock exchanges usually have lots of trading and small price differences between buying and selling, making them easy to buy and sell in. On the other hand, some markets outside exchanges might have less trading and bigger price differences, making them harder to trade in quickly.

How to Identify Liquid Stocks:

1) Trade volume is high:

• High trading volume means lots of people are buying and selling the stock, making it easier to trade.
• Low trading volume means fewer trades, which can make it harder to buy or sell the stock quickly.

2) The difference between the bid price and ask price is less:

• A narrow bid-ask spread means the difference between what buyers are willing to pay and what sellers are asking for is small. It's easier to trade when this gap is tight.
• A wide bid-ask spread suggests there's a bigger difference between what buyers want to pay and what sellers are asking for. This can make trading slower and more expensive.

3) Consider Market Depth:

• ‍‍Market depth shows how many orders are waiting to be filled at different prices. More orders mean there's more interest in the stock, making it easier to trade.
• Less market depth suggests fewer orders, which can mean less interest and slower trading.

What is hedging?

Imagine you're a farmer growing wheat, and you're worried about the price of wheat dropping by the time you harvest it. You want to protect yourself from losing money if the price goes down. So, you make a deal with a buyer to sell your wheat at a fixed price in the future, say 6 months from now. This way, even if the market price of wheat drops, you're still guaranteed to sell your wheat at the agreed-upon price.

Hedging in the stock market refers to a risk management strategy that is used by investors to lower the potential losses that results from unfavourable price movements.

Stock market hedging helps investors reduce risk by using options, futures, or swaps. This can be done on stocks, indexes, bonds, and even commodities.

How does Hedging Work?

Hedging works by taking an opposite position in a related investment. For example the main Investment could be the stock, bond, commodity etc. you already own that you want to protect from price movements. For this the Hedging Position would be a new investment you make that will benefit you if the main investment loses its value, and vice versa.

In the above example here's how hedging can help:

• Main Investment: Your wheat crop. You're hoping for a good harvest and high wheat prices.
• Hedging Position: You can sell wheat futures contracts. These are agreements to sell wheat at a predetermined price (called the strike price) on a specific future date.

Another common example of hedging in the stock market involves using put options to protect yourself from a decline in a stock's price. Here's how it works:

• Main Investment: Let's say you own 100 shares of A company at ₹100 per share. You believe in A’s long-term potential, but you're worried about a short-term market correction that could bring the price down.
• Hedging with Put Options: You can buy put options for A stock. Put options give you the right, but not the obligation, to sell your shares at a certain price (called the strike price) by a certain expiry date.

Imagine you buy put options with a strike price of ₹90 and an expiry date in 3 months. Here's what could happen:

• Stock Price Goes Up: You can simply let the put options expire unused. You'll enjoy the gains on your original 100 shares of A if the price rises.
• Stock Price Goes Down: If the price falls below ₹90, you can exercise your put options and sell your shares at ₹90 each. This will limit your lose compared to just holding the stock and watching the price drop. Even if the price crashes to ₹80, you'd still get ₹90 per share thanks to the put options.

Advantages of Hedging:

1. Risk Reduction: Think of hedging like a safety net for your money. It helps protect you from losing too much if the price movements vary in the markets. By using hedging strategies, individuals or businesses can protect themselves against adverse price movements in assets, currencies, commodities, or interest rates.
2. Peace of Mind: When you hedge, you worry less about sudden drops in prices or rates. It allows individuals or businesses to lock in prices or rates, so they won't suffer major financial losses if market conditions turn unfavourable.
3. Control: Hedging gives you more control over your financial risks. You can choose strategies that fit your needs and comfort level.
4. Price Speculation: In some cases, hedging can be used strategically to speculate on future price movements. For example, an airline might hedge against rising oil prices by buying oil futures contracts, locking in a lower price for future fuel purchases.
5. Reduce Overall Portfolio Volatility: This means the value of your investments won't swing as much, making things less stressful, especially if you don't like taking risks or are close to retirement.

Disadvantages of Hedging:

1. Costs: hedging strategies often comes with costs, such as transaction fees, premiums for options contracts, or margin requirements. These costs can also take away your into potential profits or increase overall expenses.
2. Over-hedging: Sometimes people hedge too much, which can limit their ability to make money when things are going well. It's like being too cautious and missing out on good opportunities.
3. False Security: While hedging can reduce risk, it can also create a false sense of security. You might rely too much on your hedge and not pay enough attention to other risks.
4. It Might Not Work: Despite your best efforts, hedging doesn't always do the trick. Market conditions can be unpredictable, and your hedge might not fully protect you from losses.
5. Complexity: Hedging strategies can be complex, especially for beginners. Understanding different hedging instruments and how to use them effectively requires some financial knowledge and experience

‍

Ever heard fancy terms like "derivatives" or "futures contracts" and wondered what they mean? Don't worry, you're not alone! Many beginner investors find these concepts confusing. However, understanding derivatives is essential for anyone looking to navigate the world of finance confidently. In this blog, we'll break down derivatives in simple language, specifically suited for Indian investors.

What are Derivatives?

Let's start with the basics. Derivatives are financial contracts that derive their value from an underlying asset, like stocks, commodities, or indices. Think of derivatives as bets on the future price of these assets. They allow investors to speculate on price movements, hedge against risks, or even just manage exposure to different assets without actually owning them.

Derivatives are essentially agreements between two parties that derive their value from the fluctuations in the price of this underlying asset.

For example you own a farm and expect the price of mangoes to go up in the summer. You can enter into a derivative contract with a local vendor, agreeing to sell them mangoes at a fixed price in three months. This way, you lock in a profit if the price indeed goes up, and the vendor gets mangoes at a predictable price.

Types of Derivatives:

There are a few main types of derivatives that you should know about:

1. Forward Contracts: These are customized agreements made directly between two parties. They agree on a price to buy or sell a specific underlying asset at a predetermined future date.

Let's say you're a jeweller and need gold for your upcoming collection launch in 6 months. You can enter into a forward contract with a supplier to lock in the gold price today, this protects you from future price hikes.

Remember, forward contracts are private agreements, and are not traded on exchanges.

2. Future Contracts:Similar to forwards, futures are agreements to buy or sell an asset at a specific price on a specific future date. However, unlike forwards, they are standardized contracts traded on exchanges like the National Commodity & Derivatives Exchange (NCDEX) in India. This means the contract details (like quantity and quality) are predefined, ensuring transparency and ease of trading.

Example: You believe the price of crude oil will increase due to global tensions. You can buy a futures contract for 100 barrels of crude oil at a future date (say, ₹5,000 per barrel in 3 months). If the price goes up to ₹5,500 by then, you can sell your contract and make a profit. But if the price falls, you'll incur a loss.

Note:

• Expiry Date: The date on which the contract must be settled (delivery of the underlying asset or cash settlement).
• ‍Lot Size: The standardized quantity of the underlying asset in a futures contract.

‍

3. Options Contracts: Imagine having the option to buy or sell an asset at a certain price by a certain date, but not being obligated to do so. That's the beauty of options contracts. Options contracts give you the right, but not the obligation, to buy or sell an underlying asset at a certain price by a certain date. There are two main types:

• ‍Call Option: This gives you the right, but not the obligation, to buy an asset at a predetermined price (strike price) by a specific expiry date.
• ‍Put Option: This grants you the right, but not the obligation, to sell an asset at a predetermined price (strike price) by a specific expiry date.

4. Swap Contracts: Swap contracts are customized agreements between two parties with the investment professional acts as a middleman.To exchange cash flows based on underlying assets like bonds, currencies, or even interest rates. It's like a barter system for financial instruments. There's usually no exchange of the principal amount itself, just the cash flow generated by it.

Imagine you have a loan with a floating interest rate (linked to a benchmark rate), but you prefer the stability of a fixed rate. You can enter into an interest rate swap with a bank, where you exchange your floating rate payments for the banks fixed rate payments.

Note:

• Counterparty: The other party involved in the swap contract.

How Derivatives Work:

Let's break it down with an example. Imagine you're a farmer in India, and you're worried about the price of wheat dropping before you can sell your crop. To protect yourself, you could enter into a futures contract to sell your wheat at a set price in the future. That way, even if the price of wheat falls, you're guaranteed to sell it at the agreed-upon price.

Benefits of Derivatives:

Derivatives offer several benefits for investors:

• Hedging: They allow investors to protect themselves against potential losses by offsetting risks.
• Speculation: Investors can try to make money by predicting price movements in the market.
• Diversification: Derivatives provide opportunities to diversify investment portfolios and spread out risk.
• Price Discovery: They help determine the future prices of assets by providing information about market expectations.

Risks of Derivatives:

Of course, derivatives also come with risks:

• Market Risk: Prices can be unpredictable, leading to potential losses if predictions are wrong.
• Leverage Risk: Derivatives often involve borrowing money to make bets, which can magnify both gains and losses.
• Counterparty Risk: There's a risk that the other party in the contract won't hold up their end of the deal.
• Complexity: Derivatives can be complex, so it's essential to understand what you're getting into before you start trading.

Are Derivatives Right for You?

Derivatives can be powerful tools for hedging risks (protecting your investments from price fluctuations) and potentially multiplying returns. However, they are complex instruments and carry \ risks. Here are some things to consider:

• Understanding the Risks: Derivatives can lead to significant losses if not used properly. Ensure you understand the mechanics of each type of contract and the potential risks involved.
• Market Knowledge: Derivatives are sensitive to market movements and can be volatile. A solid understanding of the underlying asset and the factors affecting its price is crucial.
• Risk Management: Derivatives involve leverage, meaning a small movement in the underlying asset can significantly impact your profit or loss. Proper risk management strategies like stop-loss orders are essential.
• Regulation: Derivatives trading in India is regulated by the Securities and Exchange Board of India (SEBI).
• Start Small: If you're new to derivatives, it's wise to start with smaller contracts and gradually increase your activity as you gain experience. Consider consulting a stock market brokerage firm like swastika Investmart for personalized guidance.

Conclusion:

Understanding derivatives is key to becoming a savvy investor. While they offer opportunities for profit and risk management, it's crucial to approach them with caution. By grasping the basics and being aware of the risks, Indian investors can navigate the world of derivatives more confidently and make smart decisions about their finances.

If you've ever wondered how investors make money by predicting the future movements of stocks, commodities, or indexes, then you're in the right place. In this beginner's guide, we'll explore what futures and options are, how they work, and how you can get started in trading them.

Understanding Futures:

Let's start with futures. A futures contract is a legal agreement to buy or sell a particular asset at a predetermined price on a specified future date. These assets can include commodities like gold, oil, or agricultural products, financial instruments like stocks or indexes, and even currencies.

How It Works:

• Suppose you believe that the price of gold will increase in the future. You can buy a gold futures contract, agreeing to purchase a specific amount of gold at a predetermined price on a set date.
• If the price of gold goes up before the contract expires, you can sell the futures contract at a profit.
• On the other hand, if the price goes down, you may incur a loss.

Key Features:

• Leverage: Futures trading involves leveraging, meaning you only need to put down a fraction of the contract's total value as a deposit, known as margin.
• Standardized Contracts: Futures contracts are standardized in terms of size, expiration date, and quality of the underlying asset, making them easily tradable on exchanges.

Risks:

While leverage can amplify gains, it can also magnify losses, so it's crucial to manage risk carefully when trading futures.

Exploring Options:

Now, let's dive into options. An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified time frame.

Types of Options:

1. ‍Call Option: Gives the buyer the right to buy the underlying asset at a predetermined price (strike price) before the expiration date.‍
2. Put Option: Gives the buyer the right to sell the underlying asset at a predetermined price (strike price) before the expiration date.

How It Works:

• Suppose you expect the price of a stock to rise. You can buy a call option on that stock, allowing you to purchase it at a predetermined price, known as the strike price, within a specified period.
• If the stock price goes up, you can exercise your option and buy the stock at the lower strike price, selling it at the higher market price for a profit.
• If the stock price falls or remains the same, you're not obligated to exercise the option, limiting your losses to the premium paid for the option.

Key Features:

• Limited Risk: Unlike futures, where losses can be unlimited, options trading comes with limited risk. The maximum loss is limited to the premium paid for the option.
• Versatility: Options can be used for various trading strategies, including speculation, hedging, and income generation.

Risks:

• ‍Time Decay: Options have an expiration date, and as they approach expiration, their value tends to decline due to time decay. This can erode the value of an option position, especially if the underlying asset's price doesn't move as expected.

• ‍Getting Started: Now that you have a basic understanding of futures and options, how can you get started in trading them?‍
• Educate Yourself: Take the time to learn about the mechanics of futures and options trading, including the terminology, strategies, and risks involved. There are plenty of online resources, courses, and books available to help you deepen your knowledge.‍
• Open a Trading Account: To trade futures and options, you'll need to open a demat and trading account with a company like Swastika Investmart that offers access to these markets, has a user-friendly platform, and excellent customer support.‍
• Start Small: As a beginner, it's essential to start small and trade with money you can afford to lose. Begin with paper trading or small position sizes to gain experience without risking significant capital.‍
• Develop a Trading Plan: Define your trading goals, risk tolerance, and strategy before placing any trades. A well-thought-out trading plan will help you stay disciplined and avoid impulsive decisions.‍
• Stay Informed: Keep yourself updated on market news, economic indicators, and geopolitical events that can impact the prices of underlying assets. Stay flexible and be prepared to adjust your trading strategy as market conditions change.

Conclusion:

Futures and options trading can be a lucrative venture for those willing to put in the time and effort to learn. While these financial instruments offer opportunities for profit, they also come with inherent risks. By understanding the basics, developing a solid trading plan, and practicing prudent risk management, you can increase your chances of success in the futures and options trading. Happy trading!

Maruti Suzuki India, announced its fourth quarter financial results (Q4FY24) on April 26:

• Net profit jumped by 48% to ₹3,878 crore in Q4 FY24.
  
• Total revenue from operations in Q4 FY24 grew by 19.30% year-on-year to ₹38,235 crore, compared to ₹32,048 crore in the previous year's corresponding period.
  
• EBITDA, a measure of operational performance, rose by 40% year-on-year to ₹4,685 crore in Q4 FY24, up from ₹3,350 crore in Q4 FY23.
  
• EBITDA margins for Q4 FY24 improved to 12.2% from 10.5% in the same period last year.
  
• The company's Board recommended a dividend of ₹125 per share for FY24, an increase from ₹90 per share in FY23.

‍Trade Now

‍