Sale of stock – a very basic basis

About Short Selling

Short selling means selling a securities, contract or commodity that does not belong to the seller. The seller is committed to the final purchase of previously sold financial instruments.


There are several uses for short selling, but its main purpose is to allow investors to make

a very simple explanation:

– Assuming you know or have reason to believe a camera, exactly the same as your friend just got,

– You can borrow the camera from your friend and then immediately The current retail price is sold to a third person, such as $ 500.

– The next month when the price of the camera falls, you can buy $ 300, "return" the newly purchased camera to your friend, replace the one you lent him

Sell ​​your friend's camera $ 500 a few weeks later to buy the same model $ 300 and you can profit $ 200 for the deal

The same way as in the stock market. Your broker will lend you stock, you can sell at high prices. Once the price falls, you can buy back those stocks and replace them with the difference between your brokers and pockets

The real market The only difference between short selling and the camera is that in order to borrow stocks you You must retain the appropriate "mortgage" (capital) in your account.

There are many reasons why short selling constitutes a good deal

By short selling, market participants can help others identify high-priced stocks that are under the false impression of financial health. This represents an effective alert to avoid holding or increasing their position in the failed company

by selling short, traders can make money even in negative market environments. In the stock market, low performance stocks are ubiquitous, and high-performance stocks are scarce. "Bubble", the exaggerated overvalued stock, almost exists in any "hot" sector. Trader can earn huge profits during the bubble expansion and final outbreak

Due to its implied risk, the short selling strategy is more difficult to grasp than the simple buy and hold trading / investment strategy; that is why Most of the books on online transactions advocate a thing you must learn, as much as possible short before actually put real money