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Shorting stock : short selling, a discipline practised by a cadre of smart investors.

Shorting stock or short selling is when an investor borrows shares on the stock market  and immediately sells them, anticipating to scoop them up later at a lower price, then return the borrowed shares back to the lender and pocket the profit.

In short selling, a position is opened when an investor  borrows shares of a stock or other asset that the investor believes will decrease in value by a set future date. The investor then sells the borrowed shares to buyers willing to pay the market price.

To open a short position a trader must have a marginal account and will usually have to pay interest on the value of the borrowed shares while the position is open 

To close a short position, the investor  buys the shares back on the stock market expectantly at a price less than what was borrowed and returns them to the lender or broker. Investors must account for any interest charged by the brokers or commissions charged on trades.

Over the years, the stock market has been presenting some great shorting opportunities; in order to identify these opportunities, one requires a set of special abilities to prevent himself from getting burned.

Short sellers disinter facts from financial statements and from price observation to ascertain that a stock is overpriced. Mostly, short seller investors act with conventional wisdom, they buy low and sell high; but remember, they sell before they buy.

In the 1980s, short selling was a speciality  performed by industry experts and smart investors who made returns in excess, regardless of the market being  good or bad. 

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Those investors believed that, the market inefficient in the short run would eventually recognise a bad business managed by incompetent managers, and that, over priced stocks would settle to levels consistent with the earnings power of the bad businesses they had unearthed. 

Before the investor returns the borrowed shares, the inventor believes that the price will continue to decline and they can purchase them at a lower cost. The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity.

Shorting is more riskier than long – buying stock or what’s known as taking a long position. Mainly the common strategy of most retail investors is to buy shares of a company that they obviously hope will rise in the short term or over  a long period or maybe they will just provide dividend income.

shorting stock is risky. However , one can  benefit from the strategy if their research comes to a conclusion a stock will move lower. Those who ignore rules and risk management should never short sell or trade for that matter.

investors that only go long, adopt a bullish bias and they are always rooting for stocks to rise. Instead, at some point they should strive to be unbiased and recognise that stock falls too.

it’s easy for an investor  to get blown out by a shorting disaster. Before  taking a short position, the investor just needs to know what they’re doing, and manage that risk.

Short Selling skills teaches us the discipline of anxiety. As always, doing due diligence, protecting yourself and being Smart  playing the stock market is what’s the key.

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The most important thing investors should note is definitely being  extra careful when shorting. Short selling is a specialized skill, which is why so many investors hire pros to do it. Individual investors can play this game by  using put options to short.

Short selling is an investment or trading strategy that speculates on the decline in a stock or other securities price. It is an advanced strategy that should only be undertaken by experienced traders and investors.

One of the main reasons to engage in short selling is to speculate. Traders may use short selling as speculation and investors may use it as a hedge against the downside risk of a long position in the same stock or a related one.

If  you have a short position, the good thing is that  there’s no limit to how much money you lose if the shares rise. If the share price increases soon after you place a short position, you could quickly cover by buying back the shares and returning them to the investor you borrowed them from, if you are lucky, you might not lose very much.

The most important point to note is that, When a well investor announces a short position, it does not mean you should necessarily follow suit and put On the trade. 

The professional short investors  may have access to technical and financial analysis that you don’t. Do additional research on your own. 

 unless you are a professional money manager who has built up sufficient expertise through years of study to play the same game, stick with a long position for your investments. 

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