This page provides information about stock symbols and short selling. There are quizzes to test your knowledge.
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Stock Symbols
Stocks are uniquely identified by their symbols instead of their names. A symbol with three letters means it's traded on the NYSE or AMEX. A symbol with four letters means it's traded on the Nasdaq. A fifth letter may be assigned by the SEC (Securities and Exchange Commission) and provides important information about the stock. Nearly the whole alphabet is used by the fifth letters, but the most meaningful to investors are:
F = foreign.
Y = ADR (American Depositary Receipt) traded OTC in the U.S. An ADR represents foreign shares of a security held by a bank or brokerage. The ADR is not the foreign stock itself. Essentially, the ADR is a convenient way of purchasing foreign stocks without the complexities of overseas and cross-border transactions.
E = delinquent in its filings with the SEC. This is not a good thing. A stock with an ‘E' identifier should certainly be viewed with caution.
Q = in bankruptcy.
X = mutual fund.
Short Selling Stocks
Shorting a stock is selling it with the intention of buying it back at a lower price at a later date. A stock may go up to any price but it can only go down to zero. Consequently, because a short loses money when the price goes up the potential risk of shorting is unlimited whereas the potential loss in going long is limited to the size of the investment. To protect investors there are rules that prevent stocks from being shorted in retirement accounts.
There are other disadvantages of short selling. It is generally not regarded as a strategy for long term investors because the stock market has gone up, not down, over decades. In 2005, however, there is some controversy as to whether it is a secular bear market. If it is, shorting may make sense for longer-term investors.
Another disadvantage is that in the short term a stock may suffer a short squeeze. In a short squeeze the price rises rapidly as those who are short scramble to buy back the stock before the price goes any higher. It is basically the opposite of a stock price collapsing.
The main benefit of shorting is obviously to take advantage of the fact that stock prices go both up and down. If you do not short then you are excluded from the market much of the time because you generally want to invest in the same direction as the market. As you become more expert at investing you will also be able to take advantage of the fact that stock prices often go down faster than they go up.
If an investment is managed so the loss on any investment is limited to no more than 2% of the portfolio, shorting and going long have approximately the same risk.
http://www.sec.gov/ The U.S. Securities and Exchange Commission’s site explains the rules related to short selling.
http://www.shortpicks.com/ offers education in shorting stocks. It explains short selling and at its 555 center, Winning Scenarios, Intraday Setups and Do’s and Don’ts are identified.
http://www.fool.com/ has articles on short selling.
http://www.investopedia.com/ has articles related to shorting.
Most glossaries have an explanation of short selling.
Test Your Knowledge
Check your knowledge with the Quiz below. For some answers free information from the Internet will need to be used
http://www.thetradingauthority.com/ has a 29 questionnaire that is a prelude to a free one hour consultation. The questions are worth asking yourself even if you do not want the consultation.
http://www.alarontradingacademy.com/ 15 multiple choice questions under Trading Tools will test your trading knowledge.
ww.oag.state.ny.us/investors/investors.html The Office of New York State Attorney General Eliot Spitzer has a quiz.
Quiz
No. Question
1 Why may a new investor lose money in the stock market?
2 Which is better to lose, opportunity or capital?
3 List two trade management rules
4 Which insider activity is a more reliable indicator – buying or selling?
5 Name three indicators of market breadth
6 Name seven key economic indicators.
7 Which federal web site gives easy access to more than a hundred other federal sites?
8 Name eight factors important to fundamental analysts.
9 Which sectors are usually strengthening as the economy weakens?
10 Why are ETF’s less risky than individual stocks?
11 Name four measures of investor sentiment that are calculated.
12 Is the bond market usually a leading or lagging indicator for the stock market?
13 Is a weaker dollar good or bad for the stock market?
14 Is technical analysis appropriate for short, medium or long time frames?
15 Name five chart patterns that you can explain.
16 How is MACD calculated and used?
17 List three Fibonacci percentages (key ratios) between 0 and 1.
18 Should we invest long or short above a pivot price?
19 What use is an open interest figure?
20 What use is a short interest figure?
21 What was the average percentage amount of program trading three weeks ago?
22 How many waves in an Elliott Wave impulse pattern?
23 Is it better to time the market or not?
24 What are the five essentials for every investment?
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