So basically your borrowing money from your broker with the promise of buying back the shares??? So if i short a stock i have to buy them back? When i buy them back, it would be assumed that i should buy them back when the stock begins to reverse and then sell them? Is this how it works?
how do you short?
- Thread starter cashclay
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You want to short a stock. 1st, your account needs to be eligible to sell short. If it is, you enter an order to sell short. The platform will check the easy to borrow list, to make sure you can get a "locate," and that you have the margin available for the risk of the trade. If that is OK, the order goes out. Then you sell stock you don't you don't own. Your broker must deliver to the buyer the stock you sold, so they must borrow the shares from their own clients or another firm. In return for the delivery of those shares, your broker get cash from the buyer. They hold that cash aside for the day you buy it back, to be able to pay for that stock. Your broker incurs a cost to borrow the stock for you and will charge you a fee. At anytime, that stock can get hard to borrow, and you run the risk of being bought in.
Does that help.
Does that help.
I think the OP is more interested in how the shorting process works.
True but you can eliminate that whole step by buying buying short etfs. I would tell them to buy the 1X short etfs, thats your best trade if you feel you are to new to the investing and don't know much about how shorting works.... I haven't shorted a stock probably in years....plus you need a margin account to short, thats taking on some extra risk as well.....
Yes, if you "sell short" then you borrow the stock and thus owe the stock back to the broker, so you must replenish the shares via buying them back to close the trade. There are two outcomes that will happen:
1. The shares will drop, and you will make a profit when you buy them back (just the reverse of buying the shares and selling them higher).
2. The shares will RISE, and you will suffer the pain of a "short squeeze" and you will lose.
Many hedge funds made huge short bets on Tesla when the firm was having trouble. The stock was languishing in the mid 40's to 50's. Then, when things turned around, the stock started to go up, and up, and up. In other words, the stock created a huge short squeeze that forced the shorts to "cover" their position.
Tesla ended up rallying from $50 to nearly $200 in a few months, and flushed out every short seller. It was one of the classic short squeezes of 2013.
The major indices trend UP over time, so unless you know the theme for why the individual stock will drop, it's best to stick with the 1x short ETFs as S2007S mentioned, such as SH (S&P 500 1x inverse ETF), or use put options to minimize your risk, rather than shorting the equity outright.
If you're just daytrading, then it really doesn't matter since you're only looking at price action for a single day, thus you can sell a stock short all day when the market is down and cover the position before the close.
To help better understand on how to short sell stocks:
http://www.dummies.com/how-to/content/how-to-calculate-short-margin-accounts-on-the-seri.html
Remember,
More than 90% of small traders lose. They just lose!
http://www.dummies.com/how-to/content/how-to-calculate-short-margin-accounts-on-the-seri.html
Remember,
More than 90% of small traders lose. They just lose!
But what im confused about is if i buy them back wouldnt i be in the stock for a long position now? Thats where im getting confused. And if i were in for a long position would i be able to simply sell it off again . Not short but sell my long position?