The market is looking bullish and its the only way to make money right now it seems.
2007-11-26 10:45:27 · 5 answers · asked by Anonymous in Business & Finance ➔ Investing
First, your brokerage account has to be approved for margin privileges in order to be allowed to short a stock. Once it is, you just submit an order to "Sell Short" x number of shares of ABC stock. Your broker then borrows shares from someone that's holding shares in a margin account and lends them to you to sell. You get the proceeds of the sale. If you keep that cash in the brokerage account, I don't think you have to pay interest. At some point in the future, hopefully after the price has gone down, you enter an order to "Buy to Cover" or "Buy to Close" (depending on your broker's terminology) at which time you buy the stock back and the broker returns it to whomever it was borrowed from. If you're able to buy it back for less than you sold it for, you have a profit.
And I think you mean the market is looking "bearish". Bullish means it's going up, which it's certainly not doing right now. I'd be careful about shorting now though. There's been a long deep decline, so I would not be at all surprised to see a pretty large bounce back to the upside at some point soon.
*Update* It's riskier than the third answer indicates. If you short 500 shares at $20 ($10,000) and the stock triples to $60, you have to pay $30,000 (500*$60) to buy it back. Since you only have $10,000 in cash from when you sold it short, you have to come up with $20,000 from somewhere else. You don't have 1/3 of your money left. You have to use all of the $10,000 you got when you sold, plus $20,000 more to cover the short.
2007-11-26 10:54:20 · answer #1 · answered by Dave W 6 · 0⤊ 0⤋
The market is NOT looking bullish. Maybe you meant bearish. Subprime loans, house foreclosures, etc. The first guy that answered is right on what it means to short a stock. But he didn't tell you how to actually do it. Call your broker or go online to your broker website and "Sell Short" and the broker will take your money for the value of stock that you want to short. If the stock goes down, then you "buy to cover" and you get your money back plus a profit. If the stock goes up and you "buy to cover" then you lost money.
It is very risky but some make money that way.
Like someone told me once. "At least a stock stops at zero"
If you short a stock and it triples, then you only have 1/3 of your money left and you lost 2/3 of your money.
Risky risky risky.
2007-11-26 10:58:03 · answer #2 · answered by Troy G 2 · 0⤊ 0⤋
Instead of shorting a stock you might want to think about two other alternatives that I actually use more often: buying put options (not as much money at risk as selling short, and if you give yourself a time horizon cushion, it's a nice risk/reward) and buying ETF's that short the market ie DUG (shorts the Dow), SDS (shorts the S&P) and QID (shorts Nasdaq). Both of these methods are usually less financially risky then shorting a particular stock.
2007-11-26 15:09:53 · answer #3 · answered by Supra1Q 4 · 1⤊ 0⤋
Short refers to the act of selling an amount of stocks at a future date. When selling short you are betting that the stock will be lower on that date so you can buy it at a lower price then what you sold it for. This is very risky investing and I do not recomend it unless you are very wealthy and have a lot of money to play with.
2007-11-26 10:53:13 · answer #4 · answered by dgtatu02 2 · 0⤊ 0⤋
Call your stock broker and tell him to sell short xxx shares of yyy company. The broker will put the $$$ in your account with a hold on it. This put you "in" the market. You have the $$$ but you don't have the stock. That is how to "short" a stock.
2007-11-26 14:23:28 · answer #5 · answered by !!! 7 · 0⤊ 0⤋