What is a short sale and how is it done? Short selling is one of the terms you’ll hear often if you invest in forex and the stock market. Forex and stock market traders often use this method to profit from their depreciating investments. It should be well known when to make a short sale transaction. For this, it will be useful to be able to analyze prices well. Because before you sell, you need to correctly predict whether the price will enter a downtrend. Otherwise, you may damage.
The variety of Forex investment instruments is not available in the stock market. When the stock market is mentioned, the first thing that comes to mind is stock investment. You buy the stock of the company that you think will increase in value and make a profit that year when prices are low. If you want to sell later when it rises, you sell and make a profit. How will you profit from the shares of a company that you anticipate will decrease in value? Here we need to know what is short selling in the stock market.
What is Stock Exchange Short Selling, How Is It Done?
Short selling in the stock market is a process that protects investors from loss and allows them to make more profits. It is also a risky operation. This transaction is legal as it affects the formation of prices in the stock market. Only your institution must have a document that can make short selling. In other words, you can use it as long as you comply with the rules of the CMB. Otherwise, you can become a criminal.
How to make a short sale in the stock market? Before making a sale, it will be good to make sure that the value of the company you have determined will decrease and there will be a decrease in its stocks. For this, I recommend that you do a good analysis, examine and follow up whether that company has found a partner for itself. Because after predicting a decline, you shorted and stopped following. If the company finds a partner, its shares may start to increase and you may lose. That’s why analysis and follow-up are so important.
When we come to make a short sale; You can think of it as a kind of borrowing of stocks. For example, you have done a good research on a company, you are following and you think that its shares will drop by half soon. In this case, you can make a profit by short selling. How will this be? You will notify your brokerage house that you want to sell short. The company will understand this as borrowing. And then it will find the stocks of the company you want to buy from its customers. It will transfer the bill to your account with the permission of the customer it finds. In other words, your brokerage house will lend you the stock and you will owe it the stock and commission fee.
You will sell the last note at its present value and your money will be transferred to your account. Then, as you might expect, when the company’s stock drops in half, you buy stock from that company and return the amount you borrowed to your company. You will also pay the commission. In this case, the remaining amount will be your profit. You will have almost double the profit of the bond value.
What is Forex Short Selling, How Is It Done?
Forex market is the most suitable market for short selling. It is simple to apply and the commission rates are lower. With the bidirectional trading feature, short selling becomes simpler. Because when you think a unit will gain value, you can easily open a buy position, and when you think it will lose value, you can easily open a sell position. If there is a move in line with your expectations, you will make a profit.
Let me explain by giving an example of Forex trading; Let’s say you think that grams of gold will lose value against the dollar. Let’s say the current price of gold per gram is $200. You went to a jeweler and borrowed 10 grams of gold. That’s $2000. You went and exchanged these golds in another jeweler’s shop and you got 2000 dollars. Then, 2 weeks later, gram gold fell to 190 dollars and you went and bought 10 grams of gold with 2000 dollars in your hand. 10 grams of gold made $1900 and the remaining $100 became your profit. Short selling in Forex also works with this logic. But I don’t think a jeweler would do you this favor. You can easily do this in the Forex market. You can even double your earnings with the leverage feature.Share this article