What is shorting a stock?
You simply borrow stock that you do not own (from your brokerage) and sell it with the obligation to buy it back at some point in time, to cover your short sale. You sell a stock short anticipating that the stock will go down and you will buy it at a lower price than you sold, thus making a profit. When you enter a sale order for stock you do not own, your brokerage will automatically consider it a short sale.
Some smaller brokerages may not have a large enough customer base to allow you to borrow stock to short. Some traders never short because of the unlimited risk involved. TradeWiser.com believes that traders will benefit from learning to use both long and short positions. But with that said, we also urge beginners to become profitable with long positions before going short. If you are on the right side of the market, it makes no difference whether the market goes up or down. Downtrends in the market frequently take place sharper and faster than uptrends. This happens because more traders play the market from the long side than do traders who trade both long and short. Bull markets don't continue forever, so learn to short.
Back to FAQ's
How can there be unlimited risk when shorting?
If you short a stock at $50 anticipating that it will go down to $45, but instead it goes up to $100 before you cover, then you have lost all the money you had in that stock. If it were to go up to $150 before you bought to cover your short, you would have lost twice the money you had invested.
Wow I had no idea.
Hey you people see the posts I tried to warn him, really I did.
You simply borrow stock that you do not own (from your brokerage) and sell it with the obligation to buy it back at some point in time, to cover your short sale. You sell a stock short anticipating that the stock will go down and you will buy it at a lower price than you sold, thus making a profit. When you enter a sale order for stock you do not own, your brokerage will automatically consider it a short sale.
Some smaller brokerages may not have a large enough customer base to allow you to borrow stock to short. Some traders never short because of the unlimited risk involved. TradeWiser.com believes that traders will benefit from learning to use both long and short positions. But with that said, we also urge beginners to become profitable with long positions before going short. If you are on the right side of the market, it makes no difference whether the market goes up or down. Downtrends in the market frequently take place sharper and faster than uptrends. This happens because more traders play the market from the long side than do traders who trade both long and short. Bull markets don't continue forever, so learn to short.
Back to FAQ's
How can there be unlimited risk when shorting?
If you short a stock at $50 anticipating that it will go down to $45, but instead it goes up to $100 before you cover, then you have lost all the money you had in that stock. If it were to go up to $150 before you bought to cover your short, you would have lost twice the money you had invested.
Wow I had no idea.
Hey you people see the posts I tried to warn him, really I did.
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