| Short Selling In A Nutshell | | | | when you short sell. |
| Short selling means to sell a stock that you don't | | | | Unlimited Potential Losses |
| own so that you can later buy it back (at a lower | | | | One thing that scares people about short selling is the |
| price) so that you can pocket the difference. It's | | | | theoretical possibility of unlimited losses. For example |
| something a trader does when he thinks that the | | | | if you short 1000 shares of a stock when it's at $10 |
| stock will go down in price rather than go up. | | | | (you would need $10,000 in your account to do so |
| How Do You Sell A Stock You Don't Own? | | | | and $10,000 would be your potential gain if the stock |
| The stock has to be available to short through your | | | | went to nothing) and that stock went all the way up |
| brokerage. Sometimes a stock may be available to | | | | to $100 then you would be out $90,000 (9 times |
| short with one broker but not with another. This is | | | | your original investment!) |
| one reason why a short trader may want to have an | | | | But in reality your broker would give you a "margin |
| account with multiple brokerages. | | | | call" well before it ever got to that point. They aren't |
| Approved For Margin Trading | | | | going to let you rack up anything closes to those |
| I'm only experienced with Ameritrade as it's the | | | | amount of losses. |
| broker that I use but I assume that their rules are | | | | Why Short Sell? |
| similar to other brokers. With Ameritrade your | | | | So why do some traders short sell? Because it |
| account must be approved for margin trading to be | | | | means they can make money on a stock not only |
| eligible for short selling. | | | | when it's going up, but also when it's going down. |
| You Must Have The Funds Available To Buy The | | | | This is particularly advantageous when the overall |
| Stock Available | | | | market is going down. Some traders by go "long" on |
| You may think because you are selling the stock that | | | | a stock on it's way up and then go "short" when it's |
| you don't need to have the money in your account | | | | on the way down so they can make a profit both |
| to buy it, but that's not the case. You must have the | | | | ways! |
| money available to buy the stock in your account | | | | |