Market-Makers & Selling Short
What if the stock values are up incredibly high, but you did not get in on that particular commodity and own no shares? Your first step should be to visit a market-maker or to make a deal with a broker for a short sell.
A market-maker is literally a stockbroker who purchases keeps a certain amount of shares of several securities or stocks on hand, which are purchased during a time when the market rates are low.
The firm will then turn around and sell those shares to an individual at that low price, regardless of the market rate, in effect making its own market. The individual who purchases from the firm can immediately sell the commodities on the open market at market rate making an incredible amount of profit in a short period of time.
A short sell is another option for a quick profit. In this scenario, you will borrow a particular number of shares from a stockbroker to sell when the market value is high. Your job is to then wait for the stock price to go down, purchase the same quantity of stock, and return the holdings to the broker, keeping the profit from the sale, minus the broker fees.
The way that a car dealer works with trade-ins is very similar. They will purchase the car from you at a very low price, then turn around and sell it on the lot for a high profit margin.
One of the most positive aspects of a short sell is that you never actually take possession of the stock, meaning that you are never in a position to lose money. Because you have sold shares for a high price, you have already profited, and in the worst-case scenario, the particular stocks will not drop in price.
Rather than return the stocks to the broker from whom they were borrowed, you can simply pay back the amount for which they were originally purchased, along with the premium.
How can you be sure that you will not overshoot the best price options or miss a good rate because you are unavailable to place a buy order or sell order with your broker? Is there a way to set limits on your trades? Next, we will discuss ways to protect your investments and limit your risk factors.
A limit order is a standing amount at which you have agreed to buy or sell a particular security or other commodity. For instance, you have designated to your stockbroker that you will not sell X Security until its value reaches a minimum value of Y dollars. At the same time, you will not purchase the same X Security if it exceeds a value of Z. Setting limits for the price you pay for a particular security, as well as the price you will accept to sell it, protects you and your investment in several ways.
First of all, you are maximizing your gains, but mostly, you are avoiding loss. Any loss that occurs with limit orders will always be unrealized loss, or a loss that is not measurable in liquid assets or cash.
In other words, until you sell the stock and reap the net loss, it will not affect your net worth. Since you have set a limit that does not allow your commodities to be sold for less than the original cost, you cannot possibly have a loss in your net worth.
At the same time, you are also assuring at least a certain amount of profit by setting your sell point high enough to reap that particular profit.
Another way to protect your assets is to hedge. This means that you create and sell a futures contract stating that, when your shares reach a certain value in the future, you will sell your holdings at this predetermined price.
When that price is reached, the order will be processed, and the transaction completed. Of course, if you ever change your mind about a limit that you have set, you can place a stop order with your broker, which designates that you no longer wish to trade at the specified dollar amount.
You can also buy on margin. This is very similar to short selling, but instead of borrowing stocks to sell, you are essentially borrowing money to purchase stocks on your own when the market value is down.
Then, when the value of the securities you have purchased rises and you are able to sell for a profit, you repay the loan and keep the excess from the sell, minus the broker fees.
Of course, all dealings with a stockbroker incur a premium, or fee for services rendered, and it is nearly impossible to trade without a broker or broker service. However, online services are often less expensive than live agents, but you can research to determine what your best option is.
How To I Handle A Whipsaw
A whipsaw is market trend that defies the odds. It can be thought of as the fender bender. Despite how careful you are as you learn to drive a car and become coordinated, sometimes you can’t do anything to avoid being rear-ended.
Whipsaw is a term for what happens when everything points toward a specific direction in market trend, causing you to buy or sell then the opposite effect occurs.
For example, if you purchase a security at $5 dollars per share because the stock seems to have fallen as far as it can go and appears to be starting an upward trend, then unexpectedly, the stock plummets to $1 dollar per share, this is considered a whipsaw effect. If this happens to you, as it surely will if you play the market long enough, the best thing to do is wait it out.
The stock will do one of 2 things it will either dissolve entirely, and the company will go bankrupt, or it will rebound, and you can opt to wait for a chance to turn a profit or you can get out as soon as the purchase rate is reached.
Whipsaws are not the end of the world, and no one can expect to gain with every stock market purchase. However, if you find that you are involved in several of these instances, you should seriously reconsider your investment options.
You may be reading the signs incorrectly, or you could be picking bad stocks. You should seek advice for any future investments you expect to make prior to purchasing any further stocks or securities.
Another way to overturn a bad investment like this is to proceed with an offset transaction a purchase or sell that offsets the loss of a previous transaction.
You could either purchase additional stock in the same company at the lower price if you expect it to recover, or you can opt for another hot commodity that is about to explode in price, either of which will help you offset your loss. You could also sell shares of a security in which you have a large amount of unrealized gains that can’t be measured in liquid assets or cash due to the increase in value of stock/security holding/holdings in order to replace the lost cash value.
All of these are viable options to recover a loss, but waiting for the share value to rebound is always the first choice. It avoids the loss of funds already invested, retains the option to pursue profit, and reduces the risk of further investment into the market.
The Complete Guide To Forex (5 of 10) – https://www.mastersofmoney.com/thecompleteguidetoforex5of10/
Risk disclosure: *All investments involve risk. Before making any financial or investment decisions, we highly advise that you seek the advice of a properly licensed and trained investment professional.