Last updated on April 26, 2021 by Justin Su
As a trader, are you trying to make money online?
Then you need to know about short selling in the stock market. If you don’t know what shorting is, you are really missing out on a huge opportunity as an earn maker.
This will explain the article about what short selling is and how short sellers make money from it.
Let’s start with the basics.
What is Short Selling in the Stock Market?
Short selling is the process of selling stocks at the current price and assuming that the price will go down, so they buy back the stocks and sell them again when the price goes up.
The person who follows this process and benefits from it is known as a short seller. It is also known as short finance.
In one simple step: An investor buys stocks from a broker at a set price and time period, sells the stocks at the current price, waits for the price to fall, buys back the stocks when the price falls, and finally sells them when The price increases.
The short selling process is very easy to follow, but it involves a great deal of risk.
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Who is involved in the short selling process?
There are three main people involved in the short sale: investor, broker, and company.
What is a short sale? A stock example
For example, as an investor, you believe that the price of TATAMOTORS shares will fall from $ 4 per share to $ 3. So you go to a broker and borrow 1000 shares at a fixed rate and time at a price of $ 4.00 ($ 4,000 total). Now you sell those stocks back at the current market price, assuming it’s $ 4.00 (1000 × 4 = 4000).
If the stock price drops to $ 3, buy them back for a total of 1,000 shares at $ 3.00 ($ 3,000).
And now you go to your broker and sell them those 1000 shares at $ 4.00 which means you make a flat profit of $ 1000. This is how short sellers make money.
But if the price doesn’t go down as you think, you as an investor are at a loss.
How do you borrow a stock to short sell?
There are several methods of borrowing stocks to sell short. Below is the best short selling app I know. These apps or websites are intended for US residents only. If you are from another country, please contact Google.
- TD Ameritrade
- RobinHood & Acorns
Famous short sellers
Below are the famous short sellers who are known for their short sales. If you want to know more about them, you have to google them.
- Jim Chanos from Kyniko
- J capital
Famous short stocks
- Vici properties
- General Electric
- Sirius XM
- Bank of America
Conclusion: This article was published to help beginners understand what short selling is and how to make money short selling. I hope to sell a stock that has been properly explained to you.