| Tonight, we want to review shorting. I | | | | 50. |
| don't know why but so many people | | | | The price of ABC goes down for you. |
| become uneasy when they hear this term. | | | | Let's say that ABC declines to $45. At |
| I guess that occurs when there is not | | | | 45 you decide that it may not decline |
| a clear understanding. | | | | much further, so you click your "BUY" |
| Shorting is used to capitalize on a drop | | | | button at your brokerage account to buy |
| in a stocks price rather then a rise | | | | 100 shares at $45. |
| in price. Buy a stock...goes up you | | | | You shorted (sold/borrowed) the stock at |
| make money. Short (sell) a stock...goes | | | | 50 and bought it back at 45. You made |
| down you make money. | | | | $5 per share in profit or $500. |
| But how do I sell a stock that I do not | | | | You sold the borrowed stock for $5000 |
| own you may ask. You borrow the stock | | | | ($50 X 100 shares) and bought it back |
| from your broker and sell it to | | | | for $4500 ($45 X 100 shares). |
| someone else. | | | | All the mechanics of borrowing the |
| Your broker has it in inventory or they | | | | stock, debiting your account (when you |
| borrow it from another brokerage firm. | | | | buy), returning the stock, crediting |
| They actually loan you the stock to | | | | your account (when you sell) is |
| sell to someone else. This is all done | | | | handled seamlessly by your broker. |
| automatically and instantly when you | | | | Of course you can lose money if the |
| place an order to short a stock. | | | | stock goes up when you place a short |
| Once you have shorted the stock (by | | | | order (like a stock going down when you |
| borrowing it) you must eventually | | | | place a buy order). That's why it is |
| return the borrowed item...the stock, | | | | imperative to be properly prepared when |
| back to your broker. | | | | entering the stock market. |
| You do this by placing a buy order on | | | | The point is, do not limit yourself to |
| the stock you are holding short. The | | | | making money in only ONE direction. |
| stock you buy is then returned. Again | | | | When the market is crashing you need |
| this happens instantly. | | | | to be shorting stocks, not buying or |
| Example: You decide that stock ABC at | | | | holding on to your buys. And when the |
| $50 is about to go down so you want to | | | | market is taking off, you need to be |
| short the stock. You click your online | | | | buying. |
| account "Short" button to place the | | | | Don't limit your income potential by |
| order, let's say 100 shares of ABC at | | | | only purchasing stocks. |