WHAT IS SHORT SELLING? How to WIN when the stock market DROPS | TRADING TIPS
In the stock market we can earn money when the stock market rises but also when it falls. In this video Jordi Martí, Head of Studies at La Factoría, explains how you can sell something you don't have. Don't miss the explanation of what "going short" means in trading.
Today I am going to explain what it is to sell short. The first thing you learn when you start trading is to buy stocks and that means going long. I buy a financial asset, a stock, a future ... whatever and I hope the price goes up. When it has risen I simply sell it and I take the difference betwee...
Read moreToday I am going to explain what it is to sell short. The first thing you learn when you start trading is to buy stocks and that means going long. I buy a financial asset, a stock, a future ... whatever and I hope the price goes up. When it has risen I simply sell it and I take the difference between what I paid to buy it and what they paid me to sell it. And what is selling short? Selling short is doing the opposite process: we will earn money when the price goes down. And how do we do it? How do we sell something that we don't have today? Brokers allow us to do that. They lend us the asset, we sell it on the market. We will hope that the price continues to drop. If it continues to decline, we buy it back in the market and if we return it to the broker and earn the difference between what they paid us to sell it and what we paid to buy it. Obviously, if the price rises instead of going down, we will buy it back at a more expensive price, therefore, we will lose money. This process, which seems very complex, is actually very simple. Nowadays, brokers allow us to do all this in an automatic way and without us having to do any paperwork or anything.
In summary, in the stock market we can make money when the stock market rises and when the stock market falls. When the stock market rises we make money by being long, we buy to sell more expensively; and when the stock market goes down we make money by going short and sell something to buy it back at a much cheaper price and give it back to whoever has lent it to us.
Remember how Ed Seykota says: losing money on the operation is distressing but losing your temper is devastating
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