Easy Explanation: Short Selling? (Stock market basics for Beginners) [Video]

#shortselling #shortsellingbasics #wallstreetmojo #learnstockmarkets #stockmarketbasics

What is short selling?
Chapters:
00:00 – Introduction
00:42 – What is short selling??
00:54 -How does short-selling work?
01:16 – What is a Long Position?
01:40 -Short selling example.
02:32 -Short selling risks.
03:25 -Why Short Selling is beneficial?
03:46 -Conclusion

In this video tutorial, we will discuss what is short selling, how short selling works, what is Long Position, short selling examples & risks, why Short Selling is beneficial, etc.

What is Short selling? Short selling is an investment strategy where an investor profits by betting against a stock.

It’s the opposite approach to the traditional long position where you buy shares when prices are low and sell them in the future when their price goes up.
So In a traditional way of investing, we first buy low and then sell high.
But in short selling, the investment order gets reversed, so we first sell high and then buy low.

Example: Let’s suppose you as an investor feel that Amazon’s stocks are overvalued at $100, and its value might come down soon. And so you borrow 10 shares from Amazon’s broker and sell them at the market’s current price, which is $100. Suppose, the next day, news comes out that Amazon’s shares value has declined by a crazy $25. And therefore, you buy back the 10 shares at $75 each and also return the 10 borrowed shares to the broker.
And in this entire process, you bag a profit of $1000-$750= $250. Nice right?
However, if for some reason Amazon’s share price rises, let’s say to $150.
Then you will end up losing $500 ($1,500 – $1000).

In 2020, US short-sellers lost a crazy $40 billion trying to bet against the stocks of Tesla, thinking it was extremely overpriced.

You also risk losing infinite money when you short sell because a stock’s price can keep rising forever, especially during a bullish market.
Plus, when you borrow shares or funds from your broker, they will charge you interest rates of somewhere between 2 to 3% on your borrowings.

So why do investors still go for it if short selling is so risky?

Short selling provides opportunities to make profits by taking advantage of a declining market.
For example, Michael Burry, profited a whopping $100 million when he predicted a subprime mortgage crisis in the year 2007 in the US. But such incidences are very rare!
Short selling is for investors with tons of experience in the stock market and have a huge appetite for risk tolerance.

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