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I am extremely excited to announce my new e-book, SOLID STOCK SELECTION is now available !! Click here to find out more.
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8/6/06 “Shorting” a stock
When most people think of investing they think in the traditional view of buying shares of stock, holding them, making money through dividends and selling the stock after seeing a gain in price per share. This is the most common way that people invest, but there are other strategies to consider. One of them is known as “shorting” a stock. (Also known as short selling a stock.) This is not a complex process if you know exactly what the concept is. First, you are selling a stock that someone else “officially” owns. Confused? Just wait and it will get clearer – hopefully. When you short a stock you believe that the price per share will go down. You tell your broker you are willing to buy the stock in the future for whatever the asking price is. You borrow the shares and then they are sold. You are responsible to pay for them at some point in the future. An example will clear up any confusion, and then you can return to the previous paragraph and re-read it. You are shorting 100 shares of company x. It is currently selling for $100 per share. (You feel that price will drop to $90 per share.) One year later, the share price is indeed $90, and you pay off the balance due (100 shares X $90 = $9000) You have made $1000 dollars. (Think…the original price on the short was $10,000, you paid $9,000.) Another aspect of this is that the stock could have gone up by $10, and you could pay $11,000 for $10,000 and you lose $1000. In either case, you are still paying the brokers fees for buying and selling the shares. If you are still confused, and I could understand why, I would suggest visiting Investopedia.com. Their explanation may complement what I have written here. As a closing note, I would not recommend shorting unless you are experienced in the market and have very strong reasons to believe a stock price is going to drop. That’s all for this week.
Rob
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Want a scholarship into the Millionaire Mind Intensive worth $2590? http://www.secretsofthemillionairemind.com The columns, articles, message board posts and/or any other features provided on Wealth Training Source are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author’s own and there is no implied endorsement by Robert Britt of any advice or trading strategy copyright Robert E. Britt 2006 |
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