How To Make Money In Stock Online - Selling Short

Making money selling short in stock is a prediction that a stock pick will fall in price, and you make money by predicting this fall. You will stand to earn the difference in the price you sold the stock for when you borrowed the stock to sell, and buying it back again at a reduced price.

Here's an example of that statement.

You borrow the shares of a stock that you think is going to fall and sell the shares at the market price. Lets say each share is $50. You sell this at the market price, and need to return this shares to the owner at a period in the future. When you need to rebuy the shares which you had sold, if the price you buy it now is $20, then you would have earned $30 ($50 - $20).

Who are you borrowing the shares from?

The borrowed shares may be coming out of another trader's margin account, out of the shares being held in the broker's inventory, or even from another brokerage firm. These stocks are held by a broker and the broker has authority to loan out these shares to traders to perform short sells. Investors, when they sign a contract to open an account, provides the broker the rights to loan out these shares.

Best way to make money selling stock short?

Short selling involves many unique risks and pitfalls to be wary of. The mechanics of a short sale are relatively complicated compared to a normal transaction. And, as always, the investor faces high risks for potentially high returns. It's essential that you understand how the whole process works before you get involved. You should have a good exprience with short selling, a good broker, or a system that analyzes historical data that at least provides you an informed decision to profit in a bearish market.

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