Learn How to Short Stocks
If you believe that a stock will fall in value, it’s how to short stocks to profit from this stance without actually owning the shares. Learn how to short stocks by borrowing the shares from your broker and selling them on the market with the expectation of buying them back at a lower price in the future and pocketing the difference as your profit.
In practice, the process of borrowing securities to sell short is often facilitated behind the scenes by your broker. There is a large pool of securities held by brokers for a variety of clients that can be borrowed and sold. These securities are fungible, meaning they can be replaced with shares of the same company from another investor.
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Professional traders often take a short position in stocks that they have researched, believing the stock will drop in value. Negative news, such as lawsuits against a company, may also spur the decision to short a stock. While these positions are relatively easy to manage once you’ve developed a strategy, they can be incredibly risky and require a high degree of expertise and discipline.
As you short a stock, the key is to monitor your position frequently and make adjustments as necessary. This will help you to avoid time decay and other factors that can work against your short position. However, this doesn’t mean you need to sit at your computer all day monitoring your short position; automated orders and alerts can make this aspect of trading much easier.…