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Shorting stocks?
Posted on 3/24/17 at 11:39 am
Posted on 3/24/17 at 11:39 am
Pardon my ignorance, but I'm pretty new at all this stock market stuff. I've been noticing on some boards like StockTwits and others, how some people are "shorting" stocks....They buy high, sell low and turn a profit? Can anyone explain how this works?
Posted on 3/24/17 at 11:45 am to RedBeardBaw
This is an ELI5 from reddit that I like:
quote:
I have this here pen. There are millions of identical ones.
It's a good pen, worth $10, meaning you can buy more pens for that price or sell it for that price.
You tell me "hey BANGBANGBOOTY let borrow that pen." I give you the pen and tell you I want it back within 30 days (or some timeframe) or I break your legs.
Because you're a motherfricker, you immediately sell my pen for $10. But you still owe me that pen.
Now let's say the pen market changes and the price goes down to $8. You buy me a new one and give it to me. You just netted $2, a pen has returned to me, and everyone is happy.
But what if pen island gets hit by a hurricane and the price for the pen goes up to $15? You still owe me that pen, and you like your kneecaps, so you buy a pen for $15, and return it to me. You lost $5 on the deal.
Replace pen with stock, and replace BANGBANGBOOTY with "anonymous trader guy".
Posted on 3/24/17 at 11:48 am to WavinWilly
I was going to answer, but that is fantastically well put.
Posted on 3/24/17 at 11:56 am to HYDRebs
Shorting, you purchase the stock with the sell price originally. Then you sell it at the buy price. So normally you buy a stock at $90 and sell it at $100, with shorting you purchase it at the set $100 sell price and expect it to drop to $90 in which you "buy".
I don't understand how it works deeper than that, like why anyone holds a stock for you that you bought higher than you think its worth?
I don't understand how it works deeper than that, like why anyone holds a stock for you that you bought higher than you think its worth?
Posted on 3/24/17 at 12:03 pm to RedBeardBaw
Being your question has been answered, let me simply add this: If you are "pretty new at all this stock market stuff", pretty please stay away from shorts. That will not end well for you.
Posted on 3/24/17 at 12:31 pm to RedBeardBaw
quote:That doesn't work.
They buy high, sell low and turn a profit? Can anyone explain how this works?
The idea is to make money if the price of a stock drops.
They borrow shares via their broker and sell those shares high first (hence, why it's called a "short sale") then they buy the shares back and return the borrowed shares LOW, or at a lower price than they sold short.
That will "turn a profit."
Posted on 3/24/17 at 12:49 pm to LSURussian
On a short sale transaction, is it true that the most you can profit is 100% of your initial sale, but can theoretically lose an infinite amount?
Posted on 3/24/17 at 1:05 pm to TheIndulger
Short (no pun intended) answer is yes, theoretically.
Bottom is 0, sky's the limit.
Bottom is 0, sky's the limit.
Posted on 3/24/17 at 2:34 pm to RedBeardBaw
'How to Make Money Selling Stocks Short"
By William O'Neil (Founder of Investor's Business Daily)
With Gil Morales.
O'Neil's other books on the CANSLIM method of investing are also good reads.
By William O'Neil (Founder of Investor's Business Daily)
With Gil Morales.
O'Neil's other books on the CANSLIM method of investing are also good reads.
Posted on 3/24/17 at 3:18 pm to TheIndulger
quote:
On a short sale transaction, is it true that the most you can profit is 100% of your initial sale, but can theoretically lose an infinite amount?
yes, its not for the average trader.
Posted on 3/24/17 at 3:22 pm to barry
quote:
Bottom is 0, sky's the limit.
False.
Posted on 3/24/17 at 3:35 pm to raw dog
(no message)
This post was edited on 4/2/17 at 5:51 pm
Posted on 3/24/17 at 7:14 pm to RedBeardBaw
Is Trading Places a good example?
Before the crop report came out they were selling while the price went up. After the crop report they were buying, while the price dropped to 29.
The didn't own the shares they bought. They had to balance everything at the end of the day.
Before the crop report came out they were selling while the price went up. After the crop report they were buying, while the price dropped to 29.
The didn't own the shares they bought. They had to balance everything at the end of the day.
Posted on 3/24/17 at 8:09 pm to Bestbank Tiger
That's commodity futures, it's different because it's a contract in which one party agrees to sell and one agrees to buy.
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