Saturday, March 30, 2013

How does one profit from Shorting stocks?



Question by curious caucasian: How does one profit from Shorting stocks?
Ok, so I know that shorting stocks is basically betting that a company’s stock price will dip. How does the basics of that work? I mean how can one profit from buying high and selling low? Does it work like a bookie betting on the odds?

Best answer:

Answer by Leonb
Well assuming you have a brokerage account and you think that this stock XXX will drop in price you will short the stocks by borrowing from a brokerage company this stock if they have and if it really drop in price and then you sell the difference is your profit, you then return the stock to your brokerage company. Be careful because shorting a stock the maximum gain is probably close to 100percent but your loss can be infinite. Why because assuming you short the stock at 3 dollars and it went up 30 dollars your loss is 1000%. The same is true for buying long because if you buy at 3 dollars your loss is only 100% in case the company file for bankruptcy now if the stock goes up 30 dollars then your gain is 1000%. Although the stock goes down 3times faster than going up so you can easily make money by short. Be careful you have to master the technical chart analysis before you even dare to short any stock.

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