What Is Short Selling In Share Market and How Do Short Sellers Make Money
by Justin Su | Apr 26, 2021 | Investment
Last Updated on May 9, 2021 by Justin Su
Are you trying to make money online as a trader?
Then you must know about short selling in the share market. If you don’t know what is Shorting then you are really missing out big opportunity as an earn maker.
This is going to be explaining the article on what is short selling and how do short sellers make money from it.
Let’s start with the basics.
What Is Short Selling In Share Market?
Short selling is the process of selling any stock at the current price and assuming that price will go down so they buy the stock back and sell them again when the price goes up.
The person who follows this process and makes a profit from it are known as short-sellers. It is also known as short finance.
In simple step – an investor purchases stock from a broker at a decided price and period, sells the stock at the current rate, waiting for the price to go down, buy back the stock when the price goes down, and at last sell them when the price goes up.
Short selling process looks very simple to follow but it involves huge risk.
Who Involves In Short Selling Process?
In the process of shorting, there are three main people who involve in it, they are investor, broker, and Company.
What Is Shorting A Stock Example
For example, you as an investor think that the price of TATAMOTORS stock will drop to $3 from $4 per share. So you go to a broker and borrows 1000 stocks at $4.00 (total $4,000) at a fixed rate & time, now you sell those stocks back at the current market price suppose it is $4.00 (1000×4=4000).
Now when the price of the stock goes down to $3 you purchase them back at a total of 1000 stocks at $3.00 ($3,000).
And now you go to your broker and sell them these 1000 stocks at $4.00 which means you earn a flat profit of $1000. This is how do short sellers make money.
But in case if the price doesn’t go lower as you think then you as an investor will be at a loss.
How Do You Borrow A Stock To Short Sell?
There are various methods to borrow stock to short sell. Following are the best Short selling app I know. These apps or websites are for USA residents only hence if you are from any other country then please refer to 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 then you have to google about that.
- Jim Chanos of Kyniko
- J Capital
Famous Short Stocks
- Vici Properties
- General Electric
- Sirius XM
- Bank of America
Conclusion: This article is published in order to help beginners to understand what is short selling and how to make money from short selling. I hope shorting a stock explained properly to you.