Yes, an idea of short selling is elusive to people. The short selling is just a chance to profit when price of the share goes down, using a tool (like financial spread betting or CFDs) and broker that permits you to sell the share or else CFD and after that buy it back. Sounds as if share trading in reverse order? This article will help you appreciate a benefits and risks in “going short”.
Short selling as the technique is used to profit from falling or else ‘bear’ share price. Stock market does not always go high, there are some periods when majority of the stocks on stock market are making very low troughs, and this period is known as the bear markets.
There is not any exact definition of bear market; it may differ between the market participants. The investor might class bear market, as 2-year period of an overall downward movement.
While a medium term trader might consider three months of a downward movement as bear market. Bear market might occur in select group of the stocks, like in a same industry segment. More severe bear market might occur all across the stocks on particular stock exchange.
Trading upward move in the share price is named going ‘long’. Long position is just when stock is bought with an objective of selling at higher price. Profiting from downward move on the stock is referred as ‘short’ position. The short position is when stock is been sold (without owning it) and with an objective of purchasing, it backs at lower price.
By trading long & short side of market, you will get better consistency in the trading. When marketplace is normally bullish, your long-trading system may perform well & when market is normally bearish your short-trading system may perform very well. Result is steady returns, irrespective of the market conditions. Shorting stock is achieved in many ways:
Short selling physical share
Selling an CFD’s over the share
Purchasing put choices over share
Selling call choices over share
Buying put an warrants over share
Least complex of four techniques is short selling a physical share. The short selling involves transactions directly with a share, while other methods involve dealing with the financial products, which move because of a movement in the share price that adds more complexity.
While you open long position, you can make money in case share price goes high & you can lose money in case share price goes down.