What is short selling?

Short selling is a a trading technique a trader uses to profit from the falling price of a stock. It is a technique of selling a stock without owning it, with the view that the price is likely to fall further and, hence, there is profit to be made by buying it back at a lower price.

When the market is bearish or in downtrend, it presents a window of opportunity for traders to make money by 'shorting' stocks with the hope that the market will continue to be bearish and this is where short selling comes into picture.  

Is short selling dangerous?

To start with, traders should be aware that short-selling is trading and not investing. They should also be aware that trading requires lot of skills and discipline and there are risks involved with it. To find whether short selling is dangerous or not, let us look at some of the key points below.

•  Historically, individual stocks and equity markets, both domestic and global, have moved upwards (short-term movement aside). Thus, if we agree that the direction of markets is generally bound upwards, then holding on to a short position for a longer time is betting against the historical trend of a market is very risky. 
• A trader should always exit the market once the target is achieved or the stop loss is triggered. But as this discipline in market is against our natural instincts of fear and greed and lack of such discipline, makes the position riskier. 
• Theoretically, one stands to make only limited profit on a short sell with chances of unlimited loss. This is because, the stock price can rise to any level, whereas the gain is limited since the stock price cannot go below zero. 

In Indian equity markets, short selling is typically undertaken via the futures and options route, since short positions in the cash markets can be held only intra-day. One may not be able to carry forward short positions in cash markets, since stock lending and borrowing is yet to kick in a big way to facilitate short selling in cash markets. As for as the futures  are concerned, the quantity or the lot sizes of the stock futures are so high that many are not aware of the huge risks involved in short selling such instruments.

To summarize, though short selling could a profitable strategy occasionally, it could result in substantial losses and it should not be used by investors or traders who are new to the market and who do not understand the dynamics of stock market.

How to make money from stock market? You would find the answer once you understand and remove the myths about stock market investing. Like most different companies or industries, the stock market too has its share of legends and myths. These myths are responsible for some people maintaining a safe distance from the markets. By doing so they are losing the chance to get involved with shares and experience the industry. Here we try to dispel several of the myths about stock market investing.

Shares are dangerous : While shares tend to be risky if active trading is done, but if investing is done over the long-term they perform well. So if you‘re in the market for the long haul, don’t worry about short-term ups and downs. In addition keep away from purchasing shares on borrowed funds. Don’t take loans for investment and invest only the amount that is available to you.

Stock market is gambling : This myth is potentially the most damaging one. It is the cause of a lot of investors keeping afar from the market. There‘s a major discrepancy between the two. While gambling is a game of fortune, the market investing has a natural scientific base. There are different scientific techniques accessible to define if the stock is worth investing or not and there are no such things when it comes to gambling.

Only the rich can invest in stocks : Not really ! A lot of investors like Warren Buffet have become wealthy by investing in shares. Over a longer period, stocks have managed to beat inflation and make investors pretty wealthy. Make small investments by selecting fine companies with great basics and hold them for a long period to watch them grow.

Low-priced or Penny shares are safe : That is strictly not true, as the low price of a stock might mean that the company does not have a great fundamentals. The market reasons the basics over the long-term. So even if you may see such shares shooting up pretty fast in the short-term, over the long-term they are bound to settle lower. Use the fundamental analysis to decide whether to buy the stock or not.

Tips and calls are a sure shot way to earn money in the markets : No, that isn‘t true. Most tipsters tend to give tips meant for traders and not for investors. These tips don‘t work well for the investors. As an alternative, do your own research and then select the shares to invest.

The market analysts are always right : Not really ! It is not much of a use to sit and watch market analysts make their predictions about the stock price and make a decision based on these predictions. A lot of people tend to take these predictions pretty plainly. Well, if these analysts are right, then all of them would be wealthy, right? So take these analysts with a pinch of salt.

To conclude, don't let these myths to deter you when you’re planning to invest in shares. Invest in shares with a long term view to make money and to accumulate wealth.

Here comes a new product from Benchmark mutual funds - Hangseng Bees. The investment objective of the fund is to provide investment returns that closely correspond to the total returns of securities as represented by the Hang Seng Index. We all know about Nifty Bees which invests in Nifty index scrips and is well traded in NSE. This is a new product by which Indians can buy Hangseng index. This has come at a time when there is lot of interest in tracking Chinese markets.

Details of the scheme:
One Unit of Nifty BeeS is approximately 1/10th of the Hangseng Index, which is currently at 20000, so 1 unit would be Rs.2000. It will be listed and traded on the NSE -Capital Market Segment and is settled in the Rolling Segment on T+2 basis.
The fund is expected to be launched next month.

Get yourselves prepared to buy China ! And don't forget to know about Nifty Bees

Nifty Bees is the first Exchange Traded Fund (ETF) in India launched by Benchmark Funds. The NSE Code is NIFTYBEES. Recently I have been receiving many email queries from our regular visitors about whether one can trade, take delivery and so on. This update is to clarify their doubts and add some more details about it.

Nifty Bees is just the replica of the NSE Nifty Index which is currently at 4700. It is 1/10th of the value of the index, quoting at 470. It is as simple as that.

Now the question is, can anyone trade or take delivery of this, just like any other stock?
Definitely one can trade or take delivery just like any other stock. Since Nifty Bees is primarily an investment product, it is wise to take delivery rather than trading intraday.

So now the next question is - when to buy and how much to buy?

Instead of timing the market,like I will buy at 15k or 12 K, it is better to buy in a systematic manner. Systematic Investment Plan - as the name suggets, Invest a certain fixed amount every month and take delivery of the units/shares.

Features of Nifty Bees:

1.You can buy the market as a whole.
2.You can buy 1 unit also.
3.After you have bought , just like stocks it will be available in your DMAT Account.
4.You can sell them any day.
5.You need not worry about buying and selling stocks.

Some not-so-exciting features:
1.You wont get 20%-30% upmoves in a day, like in stocks. (Other than a Blackswan upfreeze ! )
2.Moderate returns.

Going by all these features , Nifty Bees is a good investment product and it is a simple way for small investors to participate in equity markets.

You can also read the previous article here - What is Nifty Bees ?

The Customer Confidence Index (CCI) is an indicator which defines the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending. It is a crucial tool that enables the user to understand the consumer’s mindset.The world’s first CCI was introduced in the USA in 1985, and has a sample of 5000 people.

Recently in India, The CNBC-TV18 Boston Analytics Consumer Confidence Index was launched which is designed to reflect the aspects of the Indian economy like employment, savings, spending, inflation, and real estate through the eyes of the Indian consumer.

The CNBC-TV18 Boston Analytics Consumer Confidence Index will be released every month and shall be based on a sample size of about 10,000 respondents spanning all the metros and major 15 cities in India, thus making it the largest Consumer Confidence Index in the world. The index will be based on the level of consumer confidence over time on various parameters like Current Situation, Future Expectations, Employment,Inflation, Consumer Spending, Savings and Real Estate.

Meanwhile,the CNBC-TV18 Boston Analytics Consumer Confidence Index dipped 4.2% in May from 74.1 in April. The Future Expectations Confidence Index also declined 6.8% — from 77.6 in April to 72.3 in May. This was the lowest reading of indices since Jan 2008.

And Markets on a roll !

What is Black Swan Theory ?

The Black Swan theory refers to a large-impact, tough-to-predict, and rare event beyond the realm of normal expectations. The term Black Swan comes from the assumption that 'All swans are white'. In that context, a black swan was a metaphor for something that could not exist or not possible.

The "Black Swan" theory refers to events of large consequence and their dominant role in history. Black Swan events are a special category of what is called outliers.

What has got Black Swan theory got to do with Indian Markets now?

The Indian Stock Markets hit the upper circuit of 10/15/20% which hasn't happened before. This is a Black Swan Event, a rare event - no one expected. Particularly this is a Black Swan for the bears since markets have hit lower circuit many times before, but not the upper circuit.

Identifying a Black Swan Event.

1. The event is a surprise.
2. The event has a major impact.
3. After the fact, the event is rationalized by hindsight, as if it had been expected.

Another example of a Black Swan Event - Your stock broker gives a buy call and it works :)
If come to know any such events post it in the comments section.

NSE India VIX - Volatility Index.

Volatility Index is a calculation of markets expectation of volatility over the short term. India VIX is a volatility index based on the Nifty 50 Index Option prices. From the best bid-ask prices of Nifty 50 Options contracts, a volatility figure (%) is calculated which provides an indication of the expected market volatility over the next 30 days.

Volatility is described as the “rate and magnitude of changes in prices” and commonly referred to as “risk”. Volatility index is a tool aimed to help traders understand market risks better and take decisions accordingly.

Such indexes have been used widely and relied upon by investors in developed markets. The Chicago Board Options Exchange launched such an index, CBOE VIX, in 1993.

The NSE, does not intend to introduce tradable products based on the India VIX. Many market participants have been calling for tradable products which they would find it useful in hedging their portfolios.

Meanwhile, India VIX closed at 51, which is a 2-month high, indicating high volatility in the short term. If you want the historical data of India VIX, you can download it from here.

Cut your losses and Let your Profits run.

How many times we have heard this simple rule of trading? A rule often used in trading that acknowledges the tendency among traders to sell winning positions too early and while they also hold onto losing positions in the hope that the stock will come up quickly.

Most traders tend to take quick gains off the table so early out of fear that the Profits will evaporate quickly.The key to letting your profits run is to not to panic when volatility increases and to maintain your convictions about why you entered into the trade.

To explain this, I am giving details about a recent trade done last week, by one of our friends. As you can see the trade is a short sell one. The stock - Akruti - shorted at Rs.2100 and covered at Rs.1600 (the stock fell Rs.550 that day). Though the quantity traded might be small, one needs to look at the way it has been traded. The position was not closed for just 100/200 profits, but the profits were allowed to run almost entirely.




Cutting your losses and letting your profits run is nothing more than making decision about the trade before the trade has been initiated. When attempting to make all these decisions during the trade, you get yourself into trouble and make emotional decisions.

Define your discipline prior to investing/trading and not after.