Short Selling

Short selling is a term that is very commonly used in the trading of shares. So, it is important for investors to have a good understanding of the meaning of short selling. Stocks represent a small piece of ownership of a company that is bought by an investor through a broker in order to make profit of it. There are currently no comments for this product. This is when the investor "goes long on an investment." Conversely, when an investor thinks that is going to be in the future.

Short selling or "shorting" is a practice of selling securities. The investor anticipates did the price of the stock will decline in the future and short sells it in order to purchase the security at a lower price. A short seller "borrows" the securities to be sold and repurchase them for returning to the lender. If the price of the stock declines, the investor can make huge profits by short selling them. Conversely, if the price increases the investor can lose a huge amount of money.

For example, a company AB currently has a value of $ 5. A short seller now borrows 100 of these shares from the broker and Sells them at $ 500. When the price of the share declines to $ 3 per share, the investor buys the 100 back for $ 300 and makes a $ 200 profit (borrowing fees deducted from this). Conversely, if the price increases to $ 10 share, the investor can lose $ 500.

For short selling, an investor needs to open a margin account with the broker. This allows the investor to make a profit on the portfolio as collateral. In general, the value of the portfolio must be at least 50% of the size of the short sale amount. For a short sale, investor needs to instruct the broker. The broker can only be borrowed. Similarly, it can be bought back when the price declines. The profit of the investor.

An investor short sells due to two prime reasons – opportunism and portfolio protection. Sometimes an investor might feel that a particular stock is tremendously overpriced and is bound to fall. Short selling allows him / her. So, it helps investors to insulate their stock at the time of a downturn. It is also seen by some investors as a way to diversify. This can reduce the volatility in the portfolio as a result of an economic downturn and help to profit even when the prices of stocks are falling.

However, short selling involves many risks as the mechanism here is much more complicated than a normal stock market transaction. There is a lot of risk. To be in charge of. Bookmark at Mr.

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Source by Amit Malhotra