posted
Can someone please explain what exactly this means ?
I know it "backing" a stock to go down. Do you pick a certain level you expect the stock to go down too ?
How does the profit margin work out Ex: Stock price $5, I short sell to $4.75. What would my profit be on 5K ?
Also I hear that I can lose more than my orginal investment shorting stocks how does this work out?
Posts: 115 | From: Ireland | Registered: Jan 2005
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posted
I'll give you a example of shorting a stock:
You anticipate a stock to go down so you call your broker to see if that stock is on the "short" list and it is. So you wait for a uptick (stock has to go up one tick in order to short the stock first.. stupid SEC rule) and it does... so you "borrow" the stock from your broker and immediately sell it on the market..
You get $5,000 for the shares of stocks.. and the price of the stock starts to go down like you anticipated... eventually the stock value of the shares goes down to $1,000 and you buy it back and return the stock to your broker.. you my friend just made $4,000 profit not including commissions or any other fee's... you sold high and bought low... you basically borrow the stock temporarily to sell it high so you can buy it back low and profit the difference in the two prices..
In shorting stocks you can make 3 times faster the money because stocks tend to go down in price 3 times faster .... that is the upside... the downside is that if your wrong about the stock going down and instead it goes up in price after you sold it high... you now have to buy it back at a higher price then a lower price therefor you have to take $$ out of your pocket to buy it back high to return it to the broker... or take money out of your account... hope this all makes sense to you... but if you do not understand about trading stocks perhaps you should read a book or two... a good beginner book is:
A Beginner's Guide to Short Term Trading by Toni Turner www.toniturner.com
Oh one more thing.. penny stocks cannot be shorted by regular traders like you and me.. only usually Big Board stocks..
-------------------- Let the world change you... And you can change the world.
Ernesto "Che" Guevara de la Serna Posts: 4669 | Registered: Mar 2004
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