What is Short Selling?
Short selling is another stock trading strategy that some traders follow. A short seller makes profit from the fall in the price of stocks. Short selling is a complex process and requires precise market timing.
A short selling trader trades stocks of companies, of which he/she expects a price fall. They usually burrow stocks of these companies from others through their brokers on contract that they will return them later. The trader trades the stocks instantly for the present market value and later when the price drops, he buys the shares for lesser amount and returns to the original holder. So the profit is the commission and burrowing fee deducted difference between the prices of individual stocks multiplied by the number of stocks traded.
Short selling is only for experienced traders having the ability to find overpriced stocks and dooming companies. Short selling involves higher level of risks. If the prices of stocks increase, rather than decrease, the trader can face unlimited loss. Many times bad stocks in a bullish market show long-term price improvement, which even diminishes the traders effort to profit.
A short selling trader trades stocks of companies, of which he/she expects a price fall. They usually burrow stocks of these companies from others through their brokers on contract that they will return them later. The trader trades the stocks instantly for the present market value and later when the price drops, he buys the shares for lesser amount and returns to the original holder. So the profit is the commission and burrowing fee deducted difference between the prices of individual stocks multiplied by the number of stocks traded.
Short selling is only for experienced traders having the ability to find overpriced stocks and dooming companies. Short selling involves higher level of risks. If the prices of stocks increase, rather than decrease, the trader can face unlimited loss. Many times bad stocks in a bullish market show long-term price improvement, which even diminishes the traders effort to profit.
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