What is shorting?
Posted by - NA - on 07 March 2019 04:17 PM

Shorting (selling something you don’t own) is the process by which we can make money from a stock price going down.

Normally if we expect a stock to rise we buy it and then sell it at a profit later once it has risen.

But if we think the stock price will fall we don’t want to buy it, because if it falls and we sell it we would lose money.

So we borrow it from our broker, and sell it. 

If the price drops we can then buy back what we sold for a cheaper price.

The difference is our profit.

Beware: if you short and the stock price rises you will lose money.

If you don’t have a stop loss in place you can theoretically lose an infinite amount as the stock price rises.

If you understand the process the risks are almost identical to going long.

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