They would then pocket the difference between the initial sale price of the stock and the cost of buying them back. The goal of the short seller is to later re-purchase those shares at a lower price, and return borrowed shares. They would then sell these shares on the open market at the lower market price. One of the biggest questions new traders have when considering short selling is, how can you sell something you don't own?įor a traditional short sale, a trader would begin by borrowing the shares of a stock that they do not own (usually from their broker's account). You would then make a profit of $50 - the difference between the opening and closing price of the stock.īefore we look at some of the reasons why you would consider shorting a stock, or any other asset class, let's first understand how short selling works, and how you can make your first short trade. You open the trade at $100 and the price of Company ABC falls to $50. If you believed it was going to go down, instead of opening a 'buy' trade, you would open a 'sell' trade. Let's continue with the previous short selling example of stocks in Company ABC. Rather than buying low and selling high, you sell high and buy low, and make a profit on the change in the asset's price. Short selling is taking a bearish, or negative, trade on an asset. What does it mean to short a stock, how short selling works, why you should consider short selling via CFDs, how to short a stock CFD, the best stocks to short, and the markets you can trade short positions on! What is Short Selling? In this article, you will learn everything you need to know about short selling. As long as the market keeps going in your direction, your short position will be making you money. Short selling makes it possible to profit on the stock market regardless of if it is increasing or decreasing in value. If you bought Company ABC and its value went down to $50, you would lose money when you sold. But, what happens when the market isn't going up? What happens if the market is going down? This is where short selling comes into play. If you buy shares in Company 'ABC' at $100 and then sell it at $150, that's a tidy profit of $50, minus any commissions or interest. When markets are going up, the conventional wisdom of 'buy low and sell high' can work out very well.
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