| Selling "short" on a stock is a risky proposition, in | | | | trading is attractive, there are several risk factors of |
| which you essentially bet that you can sell stock that | | | | which you should be aware. |
| you don't own yet, but which has been promised to | | | | First, stock prices, in general, typically tend to go up - |
| you, at a price higher than you'll be able to purchase | | | | not down. You are taking the chance that a particular |
| it for, in order to make a profit. | | | | stock will "buck" this trend. If it doesn't, you'll show a |
| To a stock-market neophyte, this may sound | | | | loss, not a profit. |
| ridiculous; how can one sell something one does not | | | | Second, you need to remain aware at all times that |
| yet own? However, short-selling, while an advanced | | | | you are borrowing stock - and, therefore, money - |
| concept, is actually quite simple to understand, once it | | | | and that you can, in fact, lose more than you put in |
| has been put in plain words. | | | | on the deal. Many people overspend with their credit |
| What happens is that your stockbroker has stock | | | | cards; the same is unfortunately true of short-sell |
| available, whether from his own personal | | | | stock deals: convinced that they'll be able to make a |
| investments, or another customer, which he lends to | | | | profit and pay off the loan, people tend to oversell - |
| you. The shares are sold in your name, and the | | | | and occasionally are unable to make good on the |
| proceeds are put into your account - but then you | | | | debt. |
| must purchase the same number of shares of the | | | | Third, if a particular stock is being short-sold by a |
| same stock, and return them to the broker, at a | | | | number of investors, and they all sell their shares at |
| slightly higher cost than that at which he lent them to | | | | once, it can force the price to go higher than |
| you. | | | | expected, making the repurchase more expensive |
| Essentially, it's loan of stock which must be repaid, | | | | for everyone, and causing you a loss. There is no |
| with interest - whether you actually make a profit or | | | | way to know how many people are planning to sell a |
| not. If you are able to repurchase the shares at a | | | | particular stock short. |
| lower price than that at which they were sold, you | | | | However, if one is aware of the risks, and is careful |
| win your bet; but if the price rises instead, you lose. | | | | not to gamble with more than one can afford to |
| Usually, a "short" can be held for as long as is | | | | lose, selling short can be a profitable experience. |
| necessary to make a profit; however, if your broker | | | | If your tolerance for risk is broad enough to |
| needs the stock returned suddenly, you can be | | | | encompass the chances involved with selling short, it |
| forced to buy back the shares that you sold, | | | | can be an excellent way to to boost your stock |
| regardless of the price. If your broker overextends | | | | trading profits - if you have the know-how. However, |
| himself - which is unfortunately easy to do - you | | | | it is an advanced concept, and if you are new to |
| may find that he will put pressure on you to make | | | | investing, it may be better to leave short-sell trades |
| the purchase before you're ready. | | | | alone until you have more stock trading experience. |
| Clearly, while the opportunity to profit in short stock | | | | |