Do you want to make money in the stock market even if you don't own any shares?

Do you want to make money in the stock market even if you don't own any shares? You can do it through short selling. The technique involves selling shares you don't own at a higher price and then buying them back at a lower price. The difference between the two prices is your profit. However, this involves risk as the short seller does not own the shares during trading and it is probable that he may default on settlement or delivery. To reduce the risk, SEBI launched the Securities Lending and Borrowing Scheme (SLBS) on the NSE in April 2008.

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When a trader short sells shares he doesn't own, it's termed a naked short sale. SLBS allows the trader to borrow shares at the initiation of the short sale. This is called covered short selling and ensures that the trader fulfils his obligation by imposing adequate margins. Under the scheme, the lenders give their idle shares to short sellers for a period ranging from one month to a year, for a fee that is determined by demand and supply. This gives long-term investors an opportunity to earn additional income. SLBS is applicable in the cash market.
However, short-selling can also be done in the derivatives market. An investor can go short on a stock or market index by selling a futures contract or by buying a put option. Futures enable a trader to buy or sell a fixed quantity of stocks or index (defined in terms of market lots) within a specified period, while a put option grants its buyer a right to sell. So if XYZ stock is trading at Rs 100, the futures seller as well as the buyer of a 100 strike put option will gain if the price falls below Rs 100 on the date of settlement.
However, short selling via the derivatives market has some drawbacks compared with doing it through SLBS in the cash market. In the derivatives market, the futures and options (F&O) are traded in market lots, so one has to buy or sell the number of contracts specified in the rulebook. On the other hand, in SLBS, the market lot is one stock. So if a trader wants to sell ITC futures, he needs to trade in a market lot of 1,000 shares. This means a wrong judgment could magnify the losses for the trader. However, by using SLBS, he can choose to short sell only one stock. This safeguards him from the ill-effects of leverage.
Pros and Cons
SLBS helps in exploiting arbitrage opportunities between the cash and derivatives markets. When the futures are trading at a discount to the cash market, one can short sell the shares by borrowing them through SLBS while simultaneously buying the futures contract. Let's assume the stock of ABC is trading at Rs 200 in the cash market and at Rs 180 in the futures market. The market lot is 100 shares, while the market-determined cost of borrowing the shares through SLBS is Rs 5 per share. If we borrow shares in the cash market and sell them, and simultaneously buy the futures contract, it will entail a profit of Rs 2,000 [100 x (200-180)]. Even after paying Rs 500 as borrowing cost, we will generate Rs 1,500 as riskless profit.
Though SLBS seems beneficial, investors have ignored it and all efforts to garner their interest have failed. Between June 2009 and June 2010, there have only been 106 trades, amounting to a meagre Rs 6.42 lakh. The majority of the participants prefer the derivatives segment for short selling. According to experts, the reason for the lack of interest is the high cost associated with SLBS. According to Santanu Syam, Executive Director of Operations at Angel Broking: "A borrower needs to pay the full amount up front, besides additional margins. The sum of all margins works out to as high as 100 per cent or sometimes even more." Also, SLBS is applicable only to stocks that are traded in the F&O segment.
The system forces investors to shell out more than they need to pay in the derivatives segment. For example, if an investor wants to borrow 125 shares of Infosys at a price of Rs 2,600, it would involve a payment of Rs 3.25 lakh, plus the cost of borrowing. Also, margins such as cash margins are as high as 25 per cent of the lending price. So a short seller will need to pay Rs 4.06 lakh. In the derivatives segment, the investor will pay about 40 per cent margin (all inclusive).
Therefore, the same could be short sold with a margin of Rs 1.3 lakh. Short selling is beneficial when the markets are overvalued or when stocks are trading at unwarranted premiums over their fair values. Also, it enhances liquidity and provides stability to the stock markets. "To make the scheme more useful, the regulator should revise the margin requirement and introduce scrips other than those listed in the F&O segment," says Syam. Hopefully, the recent approval by SEBI to allow physical settlement in the derivatives segment will be the impetus that revives SLBS.

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Getting Out Of Debt - The In's and Out's

Getting out of debt can seem like a challenge—but it’s more than possible—it’s easy. It may seem like an uphill struggle a lot of the time, but rest assured, you can get out of debt much faster and a lot more easily than you’d like to think. Read on to learn more.

To many people, getting out of debt ranks right up there with finding the yellow brick road out of oz—something that is fun to fantasize about but something that is not based in reality. The truth is that getting out of debt is achievable but you have to make a commitment to getting out of debt and you have to be serious about your intentions and your choices as you progress along the path.
Unless you are a lottery winner, you need to also be reasonable and acknowledge that it is impossible to get out of debt overnight, but with the right strategy, it can happen within a few years which is acceptable given it probably took you a few years to get into debt also. Many times people give up on getting out of debt because they lose enthusiasm when they realize that their efforts hardly seem to be making a dent in their owed amounts of money…but don’t let it get you down.
There are two vital things that you must do if you want to get out of debt successfully—the first is figure out why you are in debt. If you do not stop to look at your bad spending habits you likely will fall into debt again even if you are successful at getting out of debt. This is possibly the worst result that can happen, outside of getting into deeper debt which is why you must nail bad habits down and avoid them at all costs before getting trying to rid yourself of debt—otherwise you’ll just fall right back in.
The second step you must take is to seek the aid of a consultant who is professionally trained to offer debt assistance. Many community centers and non-profit organizations can set up a meeting or consultation for free, so take advantage of these opportunities. The people you speak to are trained to handle tough debt situations, and when they advise you it is truly for your own good and not their own financial gain.

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7 alerts for a money crunch!

If you feel you are not managing your money right, start doing something about it. Small strategies will help go a long way! Here is a sample of a few things to start with, use your judgment and build on it. Give it plenty of thought, time, effort, patience, commitment and enforce a plan of action.

a. Start a savings bank account that is different from your salary account. Determine how much money you would need to comfortably and prudently manage your monthly expenses then transfer the rest automatically to your savings account, every month and keep it inaccessible for routine needs and curb any temptation to eat into these savings.

b. Prepare a budget and stick to it.

c. Keep your credit cards locked away atleast until you take control of your spending habit. One can also use a credit card to wisely keep track of monthly payments, but that is for people who can differentiate between a want and a need. Until you find yourself in that place, lock it away!

It is better to start as early as possible before you find yourself in a financial mess. Before you land yourself in big trouble learn to implement some rescue measures well in advance!

Here is an alert list that warns you of an impending disaster with your money management skills. Use it as your checklist.

#Alert 1 - You are terrible with bills and payments!
Maybe its forgetfulness or a laid back attitude or a chaotic lifestyle, whatever the reason, if you are laden with unpaid bills, get fined for late payments 70% of the time, bounce a few cheques every 10 months then its time to take stock of your organizational skills, at least in your personal finance department.

Keep a monthly tracker, set reminders on your mobile, keep an online calendar that beeps when bill, insurance and other payment deadlines arrive, choose whatever means that you are comfortable with to meet the objective of being methodical with payments. Sort bills in a folder, keep them accessible at one place.

# Alert 2 - You use your credit cards excessively and take loans often
The golden rule is to spend less than you earn. Distinguish between your needs and desires. If you desire something too expensive, which you are tempted to purchase with your credit card, think twice. Don't splurge, see if it should be on your priority list. If it is a must have and you need it that badly, save for it. That will help you decide if you feel it is worth the effort.

Remember, too much debt will eat into your monthly spending and put a road block to any kind of saving, as you will be busy paying off your credit card bills and monthly EMIs on personal loans for you to set aside anything for a saving. Instead try to reap the power of compounding interest by saving some funds. Once you are sitting pretty on a pile of money, you could then indulge in a well deserved vacation or that powerful music system, you always wanted as part of your relaxing Sundays.

# Alert 3 - Obsessive compulsive impulsive shopping
Well, shopping malls, branded stores and supermarkets lined with tempting new entrants were designed with you in mind. These places you should avoid like the plague, if you are not someone who checks the price tags of goods but instead rely on the "I want it right NOW!" mind frame. Don't stack your living room or your kitchen or your fridge, with things that are purchased without any rhyme or reason.

Take the example of Rema for instance, she has to try out new brands, interesting gizmos that she has no use for, antiques that she fancies endlessly and also food stuffs, the packaged, canned, ready to serve, frozen variety. Her living room is stacked with odd antique pieces that cost her a fortune, which she does not even have the time to take a second look at, her fridge overflows with canned foods that are well past their expiry dates and she owns three different kinds of mp3 players which she does not use! You are now thinking what a waste of money! Exactly!

It is painful routine, but make it a habit. Keep a tab on your money outflow, make a note of what, where, when, how you spend. At the at end of every month, track your bills using an excel tracker or a good old accounting notebook and shred bills that are not required retaining warranty papers and bills, for goods that can be returned. Rema did that and realized how much more she could save with a little discipline!

Alert # 4 - You are a debt juggler!
Do you have a priority list of debts that you clear based on how heavy the late fee or charges are going to be or when next you need to repeat the use of that particular service? If this is the kind of lifestyle you lead, you need help! Find ways to cut back on your monthly expenses and pay off all your dues as quickly as you can. Don't let yourself into such a pins and needles situation again! Always cut back on spending, conserve on resources until to achieve control over your finances.

Alert #5 - Cheques that bounce!
If you think you can write cheques that cannot be encashed and get away with it scot free. Think again! Bounced cheques come with hefty fine amounts and establishing such patterns will not bode well for your financial track record.

Alert # 6 - Late and default payments
It can be minor expenses like a fine for the video or book that you returned late or consistently incurred late payment charges on your credit cards or EMI payments. The former just piles on miscellaneous expenses that end up adding to a significant percentage while the latter can lead to big trouble. Making a habit of this consistently can get you labeled as a defaulter. Your interest rates and lending rates could increase at an accelerated pace on the basis of your track record for late payments.

Defaults will be reported to CIBIL. If a pattern is notice you will find taking a loan or applying for a credit card in future extremely difficult. CIBIL keeps track of all your credit and generates a report that clearly shows your past repayment track record. Nowadays Banks are keeping a close tab on these credit reports and base their loan decisions on the financial health of the loan applicant.

Alert # 7 - You don't have back up funds in place!
Can you survive a job loss for six months? Do you have some funds stashed away for such emergencies until you gather your reins and surge ahead confidently with a new job and a new plan for the future in place? What about a medical emergency? Do you have resources that you can tap into for such a scenario. If the answer is NO, then it is time to take a serious look at how you manage your money.

Keep watching this space on more such tips on managing your money.