When to Short Stocks

When to Short Stocks

By www.profitabletradingtips.com

An often effective means of
profiting from a falling stock is
to short it.

http://profitabletradingtips.com/trading-investing/when-to-short-stocks

Shorting is when a trader sells
a stock that he does not own.


Essentially he borrows the
stock from his stock broker
and has to have money in a
trading account to cover
potential losses.


In addition the trader who
shorts a stock pays interest on
the loan of the stock for the
duration of the short.


When to short stocks is when
you expect the stock to fall in
price.


the trader seeks to leverage
his or her trading capital.


Shorting stocks is a little like
buying options in that the
trader enters into a position
with a lower


capital investment than when
he buys a stock and can often
gain multiples of the cost of
engaging in a short.


Unlike options trading, the
trader is obligated to buy back
the stock at some point in
time.


Although he can stay in the
short position indefinitely,
there comes a time when the
cost of the position becomes
prohibitive.


What is a realistic profit when
trading stocks by this route?


Although profit can be
substantial in a well-placed
trade, traders are well advised
to do diligent technical


analysis of the market in order
to enter and exit at trade in
the most profitable manner.


The Problems Related to
Borrowing Stock


To a degree, when to short
stocks is not when you expect
there to be a stock split or a
dividend payment.


Because you have just
borrowed the stock you will
need to return twice the


number of shares after a split
and give dividend payments to
the brokerage whose stock it
still is.


And, if the stock price rises
greatly, and you do not have
sufficient capital in your
trading


account you may be required
to replenish your account or
the brokerage may simply sell


your shares and expect you to
come up with the rest of the
cash.


Many times a brokerage
retains the right to take the
stock back (call it away) as


when many traders are
shorting a stock and the
brokerage house only has so
many shares to offer.


Profitable Stock Shorting


Fundamental and technical
stock analyses are the sound
bases of shorting stocks.


the stock is likely to fall in
price, based on market


fundamentals and accurate
analysis of evolving market
sentiment.


you are scalping in day trading
in an up and down market or
when trend trading and a
stock is heading down.


Traders are wise to set their
stops so that they can retain
profits and avoid losses.


As with most trading, when to
short stocks is when the
market is volatile.


As with most trading, volatile
markets can lead to
substantial profits, but also
substantial losses.


Always do your own
fundamental and technical
analysis when shorting stocks.


And remember that when you
are uncertain about a trade,
there is nothing to lose by
sitting on your hands until you
understand the market!


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