sell high, buy low?

Question

whats the procedure? i know that you sell stocks that you don't own and then you hope that the stock goes down so you can buy it low. but let's say for instance that i buy 200 shares of google at for example 500 and the stocks go down at let's say 490. now do i sell the stocks that i own? if not whose stocks am i selling and how many? and do i need to buy any stocks at all to be in game of "sell high and then buy low?"
thank you for going through the trouble of reading this.

Answer 1

this is called "short selling". In your example, remember, you dont own the stock you sold, so you must buy it back to replace it. Using your example, you would short 200 shares @ $500. & buy to cover @$490. The difference of $2000 ($10X200 shares = $2000) is your profit (minus trading fees of course).

The reason this is a dangerous move is because if the price goes up, you buy it back at the difference. So if it goes to $510, you will pay $2000 to get out of it. But if done well, can be very profitable!

Answer 2

First, your account with your broker must be a "margin account" and not a "cash account".

If you think that the price is going down, you "sell short". After it goes down you "buy" like any other buy order. Your profit is the difference between the price you bought it at and what you sold it for, as usual. The fact that you bought second instead of first doesn't matter.

Whose stock did you sell? You'll never know and it doesn't matter. Your broker borrowed the shares from another investor who had a long position and will replace them with the shares you buy back when you issue your buy order.

Answer 3

Short selling requires a margin account. In such an account, when you put in an order to sell shares of a company you do not own, the brokerage firm borrows shares from someone else and sells them, crediting your account for the sale. If they cannot find shares to borrow, you cannot short sell.

When you wish to end your short sale (buy low), you place an order to buy and (in some accounts) indicate that you want to close your short position with it. The brokerage firm debits your account and returns the borrowed shares.

As a technical qualification, "borrowing shares of stock" is a very loose, practical explanation of the legally complicated process actually used by the securities industry.

Answer 4

First off, you would not want to sell your stock if the price dropped below the price you purchased it for. For example, you would want to buy stock depending upon the technical analysis. I suggest reading online to learn how to interpret line and bar graphs. You need to find the gap where you can buy into a stock and know for certain that it will be filled. You always want to know the company inside out...competitors, earnings, sec filings etc. There are many factors that go into play while purchasing a stock. I suggest starting with this and you will find the answer to your questions.

Answer 5

that's the way to do it, sadly most people do it the other way around.