Question

Short Selling

What everyday example can you find that is similar to the initial process of obtaining stock borrow when trying to short sell and how?

Answer 1

Answer:

Short selling- It is the opposite of buying the shares. In short selling, trader first sells the shares at higher price and when the share price comes down, he buys it back to cover the position. Trader and investor go for short selling when they expect the price of an underlying or index will come down. This is a bearish strategy.

Short selling is not same as buying then sell. Short selling is riskier strategy, in this strategy, the risk is unlimited because upside is unlimited, in case if stock goes up then trader will lose his money. Buying positions in spot market can be carried out overnight if the price of stock comes down.

Example: Mr. John sells 100 ABC Inc. stock at $50 each, now if the stock price comes down to $45, he will gain profit but if the stock price goes up to $60, he will suffer a loss.