Did you know that you can make money when a stock drops in price? Maybe you did, but oddly enough, many people don't understand this.
They have a "one way" view about the stock market.
Bullish or Bearish, it doesn't matter.
Today, I'll talk about shorting stocks.
This is the technique used to make money when stocks take a turn for the worse-or for the better if you're shorting! It's pretty simple.
When you short a stock, you're saying that you think the stock is coming down in price.
Imagine the power you'll wield once you have this method down.
No longer will you be held in bondage to an "upward only" stock market.
When you short a stock, you're borrowing shares of that stock that you don't own.
At some point in the future (could be minutes or days) you'll actually buy those shares to "repay" them.
Here's a great example.
Let's say that Apple is $200 per share right now but you think it's going south soon.
You decide it's time to short the stock so you borrow 100 shares to short.
Time passes and Apple is at $195, $190, $180 and so on.
Finally, the stock hits $175 and you think it's done dropping so you buy Apple at $175 per share to pay back the 100 shares you borrowed.
Stick with me here.
Back when we started, you were given 100 shares to borrow.
You sold these at $200 a pop, so that's $20,000.
Now you have to buy 100 shares to complete the deal, but they are only going to cost you $175 per share, which is $17,000.
You see? You just made $2,500 on a stock that went down.
Pretty great isn't it? It's not without risk obviously.
Had Apple went up in price, you'd have to eventually buy the 100 shares at the higher price.
So if you're shorting a stock, you want it to go down.
If you're interested in shorting stocks, you'll need to complete the requirements of your brokerage firm.