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What Is Short Selling? Explained In Simple Words! (#56)

 


Today we are gonna understand what exactly Short Selling is....
I know.... its like Rocket Science for the most of us.... but honestly, I'll make sure that you understand "the basic concept of short selling and how it works", by the end of this article.... trust me i too struggled to understand it in the beginning but I how so ever managed & I bet by the end of this article so will you!

Ok so lets just start from what exactly is Short Selling in simple words & than move on to how things work....

So first....

What Is Short Selling? In Simple Words!

Short Selling is nothing but selling high & than buying low! The basic investing principle states that you should buy low & sell high.... We did exactly the same here but we just sold first & bought later....!



Lets talk about how it works to make things more transparent!

HOW DO SHORT SELLING WORKS?
Now, I want you to understand that we invest with the help of brokers, you know those trading apps AKA Depository Participants (DP's)...., right. Yeah, so I'm gonna call'em Brokers, from right now.... so now I want you to understand that those brokers have got THERE OWN SHARES.... LIKE WHAT I MEAN IS THAT.... THESE BROKERS OWN SHARES OF SEVERAL COMPANIES....
& they basically allow us to have THEIR Shares or basiaclly borrow THEIR Shares & do whatever we want to.... but the thing is that by the end of the day we've gotta return the Broker their Shares or else I might say well, you'll be in trouble (I'll talk about that in a while, now.... So, Continue Reading!)

I hope it've started making some sense now.... if it doesn't we still have a chance....
I'll take an example to make things more clear!
OK! So....
Lets say there is a Company which has its Share trading at 1000$ right now & you somehow know that its Share is gonna fall within some time, now....
But you don't own the Share of that Company.... but your broker does.... so you basically borrow Shares from that Broker & sell it if you want to.... so now lets say that you borrowed 1 Share from that Broker & sold it; so now, you've got 1000$ after selling the Share.... right?!
& now by the end of the day the Company's Share Price does falls down to 900$.... & now you bought the Share & give it back to the Broker by the end of the day.... as you were supposed to!

So what you did.... let's have a quick recap.... you first sold the Share borrowed from the Broker, for $1000 and than later.... you bought it at $900 & returned the Share to the Broker, as you were supposed to Its a profit of $100 within 1 day!

It is what basically Short Selling is....!!!!

Here are some things you must know about Short Selling....

Short Selling is done during the Market Hours, only!

We've gotta return the Shares within the day!
Its like Day Trading or Intraday Trading OR IT JUST IS INTRADAY TRADING.... I MAY SAY!
Like-- if I continue the same last example.... than if the Share Price wouldn't have fallen down & had instead risen up to $1100 than as we already know in order to return the share we've gotta buy it now at $1100, regardless of the loss....
So first you sold it at 1000$ and now you bought it at 1100$.... a loss of 100$ within 1 day!

You just have to Return the Share by the end of the day to the Broker BECAUSE IF YOU DON'T than you may be under notice of the Stock Exchange & marked as a Defaulter and you can be charged for that!

It takes a few seconds to make Profit & a few seconds to Loose Money in Short Selling!
If you are guessing & doing Short Selling without really having the required knowledge than it is not less than Gambling for you!

ALSO READ: Is Stock Market Gambling?

So you see it is not that hard!
It is not Rocket Science!

I hope you understood.... What Basically Short Selling Is & How Does It Works!

Disclaimer: I do not at all recommend anything to anyone here!


Thanks For Reading!

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