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