Online Investment Advice: How To Make Money From Short Selling
If it has happened to you to be absolutely sure that a stock was going down for good, then you probably could have used the advanced investing approach known as short selling. Similarly, if you would like to see that your portfolio raises its value during a bear market, short selling is again your answer. Many investors know the secret behind making money during such difficult times, so here are a few tips on how to profit from short selling.
First of all, bear in mind tha…
If it has happened to you to be absolutely sure that a stock was going down for good, then you probably could have used the advanced investing approach known as short selling. Similarly, if you would like to see that your portfolio raises its value during a bear market, short selling is again your answer. Many investors know the secret behind making money during such difficult times, so here are a few tips on how to profit from short selling.
First of all, bear in mind that short selling is not very complex, but not too simple either. Many investors fail to understand it, as this concept is opposed to what people generally think investing is. If you believe that investing means buying an asset, selling it later on, and making a profit, then you should learn that short selling is making money when a shorted security actually falls in value.
Another aspect to consider is that while your broker will lend you shares for you to sell at a high price, not all shares are shortable. As a matter of fact, when you place your online order, your broker will let you know if the stock of your choice is shortable or not. If the broker has a larger portfolio, he or she will also be able to provide you with more shortable stocks. Generally, brokers have a list comprising hard-to-borrow stocks which are often unavailable for this kind of operation.
Once you start short selling, you also have to remember that you can do this only at a trade price which is higher than the previous one. If you will keep this in mind, it will be easier for you to look after your interests by being reassured that the market is protected from high price increments which could destabilize it. This is also called the uptick rule, and it was established some years ago in order to make it hard to short stocks.
Finally, if you are afraid that you may make an unfortunate investment in stocks which increase their value instead of falling, you should make use of stop orders. You will be able to cut your losses short if you are disciplined and use stop orders, which will automatically close your losing positions once they reach certain predetermined acceptable losses.
All in all, if you’re planning to try short selling remember that successful trades do not always win. If you want to become good at this, you must learn to accept that losses are also part of the game and that there are different ways to limit the losses you may experience.
Copyright © 2007 Joel Teo. All rights reserved. (You may publish this article in its entirety with the following author’s information with live links only.)
