Earning from capital appreciation

By investing in shares, one can expect to earn through capital appreciation, i.e., on the gains made on the capital (principal
invested) when the share price rises. The gains or the profits from shares can go as high as 100 percent or more. There is,
however, no guarantee of capital appreciation. The probability of the market prices remaining lower than the buy price always
exists.

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Stocks are purchased not as a form of investment, but as a way of making profit by harnessing the
fluctuations of the stock prices.

To earn money from stocks, adopting a buy-and-hold approach is a common strategy.

Rather than frequently trading, this technique involves holding stocks or other assets
for an extended period. By doing so, you can capitalize on significant annual returns.
Short selling happens when an investor sells shares that he does not own at the time of a trade. In a
short sale, a trader borrows shares from the owner with the help of a brokerage and sells it at market
price with the hope that prices will fall. When prices drop, the short seller buys the shares and books a
profit. 

The traditional approach to trading in the stock market and making a profit out of it is
through "buying low and selling high", also known as a long position. It is an
approach primarily adopted by investors in a bullish market when prices of stocks are
expected to rise.

Contrarily, a short position is adopted in a bearish market when share prices are
expected to decline. 

What is Short Selling and How Short Selling Works?

Short selling, as opposed to a long position, is an investment strategy with the
underlying motive of "buying low and selling high". Investors, who short sell stocks,
expect share prices to drop on a future date and aim to capitalize on this prediction.

Short selling, as opposed to a long position, is an investment strategy with the

underlying motive of "buying low and selling high". Investors, who short sell stocks,
expect share prices to drop on a future date and aim to capitalize on this prediction.

Since it depends on speculation and entails infinite risk theoretically, only seasoned
investors partake in short selling. To short stocks, traders sell shares that they do not
own but are instead borrowed from a broker-dealer, thus opening a position. They sell
it at the prevailing market rate, thus shorting the position and waiting for prices to
drop. Eventually, traders need to buy back those stocks they sold short to close such a
position. 

If prices do drop, traders make a profit from the difference between the selling price
and the purchasing price. However, if such a prediction for price declination does not
realise and share prices move upward instead, the concerned trader stands to lose.
Apart from speculation, investors and fund managers also use short selling to hedge
the downside risk of holding a long position on securities or any related ones.

To sell short, traders need to have a margin account using which they can borrow
stocks from a broker-dealer. Traders need to maintain the margin amount in that
account to continue keeping a short position. However, a margin account is only
applicable when an investor is borrowing stocks from a broker. Margin account does
not apply to investors or fund managers who hedge their long position against any
downside risk.