Many investors and traders profit by buying stocks that rise in value, but there are also those who profit from stocks falling – through an investment strategy known as short selling. Shorting involves borrowing shares and then selling them on the open market – with the hope that the share price will fall and you can buy them back for less later, pocket the difference (minus fees and interest) and close out your position.Check this out :theinvestorscentre.co.uk
Guide to Shorting Stocks: A Beginner’s Approach
It sounds simple enough, but there are several things that can go wrong if you are new to this type of trading. Traders who use this strategy generally have considerable experience, as it is highly risky. It also requires a margin account – which means that your brokerage firm has the right to require that you put up additional money or sell some of your investments to cover any losses that you incur while shorting.
The potential for a loss is limitless when you short a stock. As an example, let’s say you borrow 100 shares of fictional XYZ stock that currently trade at $100 per share and sell them on the open market. If the stock then falls to $50, you’ll make a tidy profit of $10,000 for your effort. But what if the stock continues to climb, and you are forced to buy the shares back at a higher price, as was the case in early 2021 with video game retailer GameStop?