How to Short the Stock Market in 2020

Hello and welcome back to another

financial video on my channel. Today we're

going to be talking about how to short the

stock market. Now, what does shorting a

stock mean? Basically,

shorting a stock or short selling is a

way of trading that benefits from a

decline in the price of a company's

shares. With normal investing, you would

purchase shares that you think would have

a good outlook and it would have have good

potential for future growth. This is known

as going long. But when you short sell or

short stocks, you are really trying to do

the complete opposite to what I just said.

So basically what this means is that

people who want to do short selling,

first they look for shares or markets that

they think may be going down for a

downswing. So when you short a stock,

this can help you as a trader to hedge

against any possible negative movements in

the market. So here is my 5-point advice,

my 5 tips on how to short a stock.

Number 1, first of all, you need to choose

whether you want to invest in shares or if

you want to speculate on the price

movements Number 2, keep a close eye on

the market price to see if your guess

was the right guess. Number 3,

if the market fell just as you thought it

would, then you have to close your

position by buying back the shares that

you sold at a much lower price. Number 4,

if the market's price increased instead,

going against what you predicted, then you

should buy back the shares at a higher

price and then just pay the difference.

There are lots of different ways that you

can short sell a stock, and even though

the process and the steps to short selling

are mostly the same, at the end of the

day, it really depends on the method of

short selling that you decide to use.

Traditional short selling. So when it

comes to the traditional way of shorting

stocks, it basically involves borrow— It

involves borrowing the shares from a

person who has already bought them, and

then you sell them at the current market

price. If there is a fall in the market

price, then the investor can purchase back

the stocks at a much lower price and

profit from the change in value. This is

normally a practice that large

institutions do instead of individual

investors, but sometimes you can find a

broker that will facilitate the selling of

short selling. Short selling is a pretty

simple concept. An investor borrows a

stock, sells the stock, and then buys the

stock back to return it to the lender.

Short sellers are betting that the stock

they sell will drop in price. If the stock

does drop after selling, the short seller

buys it back at a lower price and returns

it to the lender. The difference between

the sell price and the buy price is the

profit. Short sellers are betting that a

stock will drop in price, and short

selling is riskier than going long on a

stock because there is no time limit.

There is no limit to the amount you could

lose. Speculators short sell to capitalize

on a decline, while hedgers go short to

protect gains or minimize losses. Short

selling, when it is successful, can net

the investor a nice profit in the short

term, as stocks tend to lose value faster

than they appreciate. Here is a lovely

example of a short sale.

For example, if an investor thinks Tesla

is overvalued and the price is going to

drop, the investor may borrow 10 shares

of Tesla from their broker, who then sells

it for the current market price of $600.

If the stock goes down to $400, the

investor could buy the shares back at this

price and then give the shares back to the

broker and net a profit of $1,000.

However, if the Tesla price rises to $700,

the investor would lose all of his money,

so it's very risky. So be careful if

you're gonna do this. Let's talk about the

risks of short selling. Short selling

involves amplified risk. When an investor

buys a stock or goes long, they stand to

lose only the money they have invested.

So therefore, if the investor bought 1

Tesla share at $600, The maximum

they could lose is $600 because the stock

cannot drop to less than zero. In other

words, the maximum value that any stock

can fall to is zero. However, when an

investor short sells, they can

theoretically lose an infinite amount of

money because a stock's price can keep

rising forever. As in example,

as in the example above. If an investor

had a short position in Tesla and

the price rose to $2,000 before the

investor exited, the investor would lose

$1,300 per share.

If an investor shorts a stock, there is

technically no limit to the amount they

could lose because the stock can continue

to go up in value indefinitely. In some

cases, the investor could even end up

owing their brokerage money. So why

do some investors go short? Short selling

can be used for speculation or hedging.

Speculators use short selling to

capitalize on a potential decline in a

specific security or across the market as

a whole. Hedgers use the strategy to

protect gains or mitigate losses in a

security or portfolio.

Institutional investors frequently engage

in short selling for both speculation

and hedging. Hedge funds are the most

active short sellers and often

use short selling in select stocks

or sectors to hedge their long positions

in other stocks. While short selling does

present investors with an opportunity to

make profits in a declining or neutral

market. It should only be attempted by

sophisticated investors and advanced

traders due to its risk of infinite

losses. So what is the point of short

selling? When does it make sense? Short

selling is not a strategy used by many

investors, largely because the expectation

is that the stocks will rise in value.

The stock market in the long run tends to

go up, although it certainly has its

periods when it goes down. Particularly

for investors who are looking at the long

horizon, buying stocks is less risky than

short-selling the market. Short-selling

does make sense, however, if an investor

is sure that a stock is likely to drop in

the short term. For example, if a company

is experiencing difficulties and could

miss debt repayments, So I

hope you liked my video about short

selling stocks, and if you have any

questions, feel free to ask in the

comments. And look forward to part 2 where

we'll be talking about hedging.