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Should You Be Short Selling Stocks?
By John | July 29, 2010
One way you can make money in the stock market when stocks are falling is to short a stock instead of buying it. Short sellings involves borrowing a stock from your broker and selling it on the market.Later on you can return it to your broker buy buying it back first. If you have bought it back for less then you originally sold it for you have made money.
Thus you make money if the stock goes down. Short selling stocks is a great way to make money if the market is less then bullish. And of course one of the stock tips out there is to be prepared for down markets. What better way to be prepared then to look into making money during them.
Of course there are some downsides to this. First of all the stock market goes up over the long term.If you are going to trade stocks on the downside you are going to have to be fast about it and try to time the market. Most people are not going to be able to trade the downside effectively for that reason.
However there are also some pretty big disadvantages of short selling stocks. For one, if you short dividend paying stocks you have to pay the dividends to your broker. That can really cut into your profits. Another disadvantage is that you can only short stocks that your broker has available.So, your options are very limited.
So, is it worth going through all the trouble?It really depends. If you are active in the stock market and are going to take the time to learn how to do it right then yes. Shorting stocks can be profitable if it is done right and your losses are limited.
On the other hand if you don’t like to trade stocks in the short term or if you do not like the idea of playing the downside then it is not a strategy for you. So it really depends on you.
Topics: Investing |
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