Stocks and bonds | Finance and capital markets. The Basics of Shorting Stock. Arbitragers, speculators and many individual investors engage in a practice known as shorting stock. These "shorts" make money when the price of the stock they are shorting goes down. The Basics of Shorting Stock I own 10 shares of company ABC at $50 per share. You believe the stock price of ABC is grossly overvalued and is going to crash sometime soon. You are so convinced that the stock will crash, you come to me, and ask to borrow my ten shares of ABC and sell them at the current market price for $50. I agree to lend you my shares as long as you pay me back ten shares of ABC at some point in the future. You take the ten borrowed shares, sell them for $500 and pocket the money (10 shares x $50 per share = $500). The following week, the price of ABC stock falls to $20 per share.
Do you see what happened? The Speculative Nature of Shorting Stock What if the price of ABC stock had risen? Some investors practice shorting stock as a hedge to protect their portfolio. Dividends vs Bonus | Basics of Share Market. By J Victor on October 28th, 2011Share When you buy a company’s shares you expect that company to make a profit. The profit that company makes is then divided among the shareholders on a ratio proportional to the number of stocks one has. Dividend on stocks is therefore the proportion of a company’s profit that it pays to its shareholders. This is usually declared as a dividend per share. Although a company makes profit, they are in no way obligated to pay dividends. It’s the managing board’s decision whether to pay or not. For example - If a company whose share price is Rs. 400, declares a healthy dividend of 60% (face value Rs. 10), the dividend paid would be Rs. 6 per share.( Rs 10 * 60%) and not Rs 240 (400 * 60%).
Dividends are looked upon by the market at large as an important signaling mechanism determining the health of the corporate. However, there is a school of thought that considers dividend payouts as a waste of money. What is face value? Test 1. Test 2- Dividend coverage. 1. Share Market Basics | Stock Market Basics | How To Invest In Share Market - Kotak Securities. Chapter 1: What are the basics of financial instruments? A: Let us understand the two fundamental types of investments, namely bonds and stocks with an example. Eg. Imagine you want to start your own grocery store.
You will need a capital amount to get started. You acquire the requisite funds from a friend and write down a receipt of this loan ' I owe you Rs 1, 00,000 and will repay you the principal loan amount plus 5% interest'. Your friend has just bought a bond (IOU) by lending money to your company. Thus a bond is a means of investing money by lending money to others. There are several Pro's and Con's to investing in bonds Pro's Ø Bonds give higher interest rates compared to short-term investments. Con's Ø Selling bonds before they're due, may result in a loss, known as a discount.
Now, let us continue with the same example. Thus, to explain stocks: Stocks, also known as Equities, are shares in a company. This example covers the 2 major types of investments: bonds and stocks. Learn the Basics about Stocks: Education Center. Benefits of studying Finance. The Balance Sheet - Complete Guide To Corporate Finance. StudyFinance: Fundamentals of Applied Finance.