What are Shorting Stocks?

The $17 Stock Trading System . Stock And Option Trading.

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.

You will sell the stock at $28. When a couple of months go by you see CFC dropping down to $6.47. Since you borrowed the equity from the broker you have to pay them back. You now buy the stock back at $6.47 and give it back to the broker. Let's review: You sold the stock at $28 and bought it back at $6.47. $28-$6.47=$21.53. Wow! You made $21.53 per share you bought in a very short amount of time. Great Job!

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.

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.