What Does Shorting Stocks Mean?

When you use the Shorting stocks technique, it will help you make money when stocks are going down. How can I do this you ask? Let us look at this example. Stock CFC breaks out of resistance at $32 and is trading at $28. You can tell that this is a breakout and it will probably keep going down. Now we get to the fun part. You decide to borrow stock from your broker and sell it. This is called shorting. By doing so you have the obligation to give the broker back the stock you sold at a later date.

Many traders will prefer to short a stocks as opposed to buying them, because the stocks tend to go down faster than they will go up. Of course in the long run they tend to go up, so this can also be riskier for less experienced traders.

One of the major disadvantage to being short a stock however is that you will have to pay out any dividends that the stock may give off during the time you where short it. That is because when you borrow the stock to sell it on the open market your broker still expects to get paid the dividends.

But many times it is still worth it to go short a position even when you have to pay out dividends. Just as long as the stock goes down enough to make up for the dividends.

Short selling will normally give you a much faster return on your money, but it is riskier because you cannot simply hold onto your stock if it does not work out for you the first time.

If you want some more information on shorting stocks here is a short article on short selling stocks which can give you more insight on how well it works and how profitable it can be if it is done right.