When the market is falling, investors sell short a stock with the goal of profiting from the fall in the price of that stock. Many beginning investors get confused when they realize that it is possible to make money when the stock falls in price. In practice, shorting a stock is as easy as buying stocks once you get hang of it.
Short selling is confusing for new traders. It shouldn’t be. It is simple. The difference between the selling price and the buying price in case the price goes down is your profit. You borrow a stock from your broker and sell it with the intention of buying it back at a lower price in the near term future and returning it to your broker when you short a stock.
With short selling a stock, you make profit when the price of a stock goes down. You are anticipating further fall in the price of the stock when you short a stock. However, if the price of the stock instead of going down starts to go up, you get a loss. It all depends how well your prediction about the stock price was. If you can predict the direction of the stock price very well, you can become a great trader.
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