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Hi.
Currently doing FFM.
I do not understand this statement :
Different types of investment have different types of risk. At the other extreme, many forms of investment are highly speculative, some tactics such as sling shares you do not own, have an unlimited downside potential.
Shares you do not own??
It is called short selling. You can sell shares now (even though you don’t own any) and then buy them later. So you make a profit if the share price falls. Same with futures.
However you will not be asked calculations on this.
I don’t get this. How can u sell something u don’t own. What is the buyer buying then?
Am I missing something?
But you can, because you don’t have to deliver immediately.
On the stock exchange settlement does not occur immediately but in a week or twos time.
So I ring the dealer and say ‘sell’ at today’s price. I have to make sure that I buy the shares before the settlement date (so that I can then supply them). If the price has fallen by the time I buy them, then i buy at a lower price than I am selling and therefore make a profit.(But obviously I take the risk that the price might have gone up, in which case I lose money.)
A similar thing happens with exchange rate futures – if you watch that lecture then it should make it all clear.
However, again, although you should be aware that it is possible, you cannot be asked calculations on it in F9.
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