| Unfortunately the stock market doesn't continue to | | | | that. The difference between where you get in and |
| rise year after year. You only have to look back to | | | | where you get out. So short selling is nothing more |
| the year 1999/2000 when the tech boom rallied | | | | than hitting the sell button first and then buying it |
| incredibly fast only to tumble over 75% from it's | | | | back later, hopefully at a lower price. |
| lofty heights. | | | | Although the concept is simple many people get |
| It's true, stock markets do fall and if you are not | | | | confused with selling something they don't own and |
| positioned to short sell then you are going to be | | | | to be honest there is no easy way to explain this. |
| missing a major part of profiting from the markets. | | | | That is why CFD trading has grown so rapidly |
| Not only that but when the stock market does fall, it | | | | because the concept of trading both long or short is |
| usually falls much quicker than when it gains. The old | | | | very simply the difference between where you get |
| saying up the escalator and down the elevator shaft | | | | in and where you get out giving you a profit or loss. |
| is true when it comes to investing in the stock | | | | There are no other complexities involved. |
| market. | | | | But you need to be careful and ensure you use a |
| So what is short selling? Short selling is the exact | | | | stop loss as short selling does give the opportunity |
| opposite of what most people are used to which is | | | | for unlimited risk because a stock can continue to go |
| known as 'trading long'. Trading long is where you | | | | up forever. Imagine short selling Google shares at |
| look to buy low and sell high and profit in between. | | | | $100 when it first floated, only to watch Google |
| For example you try to buy a stock at $30 and sell it | | | | shares trade at over $700 a share 3 years later. |
| at a higher price of say $35 and profit the difference | | | | Ouch! |
| between the two. | | | | So when you take a short position on the stock |
| Short selling or trading short is where you attempt to | | | | market make sure you use a sensible stop loss to |
| sell the position first with the hope of buying it back | | | | give you protection when the position moves against |
| at a cheaper price in the future. For example you | | | | you. If you were trading a $30 stock you may want |
| might sell the stock at $30 and buy it back at $25 | | | | to have your stop loss no more than 10% away |
| and profit the difference in between. | | | | from the current stock price at $33. |
| In fact a Contract for Difference or CFD is exactly | | | | |