 Free Online Articles Directory |
|||||||
Home Page  Finance How Do You Short Stocks, and What Does a "short Squeeze" Mean? and When Does a Squeeze Generally Occur? |
|||||||
 |
How Do You Short Stocks, and What Does a "short Squeeze" Mean? and When Does a Squeeze Generally Occur?
Shorting or Selling short is a way some investors make money on stocks they believe are going to decline in price in the near future. So how to short a stock? first you need to borrow the shares from your broker, and then sell the shares in the open market at the bid price and collect the profits or premium from the sale. But wait don't spend it! You need to hold the money and wait hopefully the stock to will fall. If your prediction is right and it does fall, you then buy back the shares at the lower ask price and give them back to your broker, who gets a commission and interest.So for example, you borrow 100 shares of ABC at $100/share from your broker, then sell them for $10000. If ABC continues to fall, example drops by 10% to $90/share; then you just need to buy back the shares back for $9,000. You then pocket the different of $1000 and return the shares back to your broker. Of course, minus your broker's commission, depending on your brokers, different rates apply.But wait! What happen if your prediction is wrong?! If you happen to make a wrong bet and short a stock whose price rises later, then you are in trouble. Either you can choose to wait to see if the stock will decline, or cut loss and buy the stock back at a higher price than you sold them and give them back to your broker, along with the commissions. Also when you return the shares to the broker, you have to pay any dividends the company hands out.There are some requirements to remember for shorting stocks:1.You need to open a margin account.2.You can't short-sell stocks that are trading below $5.3.The price at which you short a stock must be at the market price or higher.4.Most short sales must be executed in round lots of 100 shares. In order to short stock, your broker will require you to take up a margin account. A margin account serves as a credit that has to be repaid at some time, depending on the decision of your stock broker firm. An initial investment of $2,000 is mandatory to set up a margin account. While margin requirements may vary at different brokerage firms, according to the rule, you must deposit at least 50% of the stock price in the margin account.If the stock you have shorted rises later, the account will be subjected to a maintenance margin. You will need to put more money into the margin account. Currently the regulations governing margin accounts are very stringent. For every 20% gain in the stock price, you have to add another 30% into the margin account.Now when you decided to take profit and close out your position, or when you sense the stock is having a bull run; this is the time to close out or cover your shorts. You repurchase the shares at the ask price and give return to your broker. Covering your short position at a loss can be a hair raising experience. During a bull run, not only short-sellers like you out there trying to buying back the shares, many more investors also jump onto the ship and start buying! This is where you experience "A squeeze". This will greatly putting greater upward pressure on the stock price! During a bull run, the upside potential may be "unlimited"; just look a GOOG and BIDU. It is very important to remember is that shorting, while offering a smart way to make bearish bets, carries very great risks when prediction goes wrong!Despite in depth analysis of a company fundamentals, prediction can sometime be wrong. You should protect their short bets should consider two simple measures. First, set a stop-loss limit on how much you are willing to lose on a short bet, and stick to it. Second, you should seriously consider hedging their bets by buying call options, which increase in value when a stock goes up.
Rate this Article:
Current: 0 / 5 stars - 0 vote(s).
Article Tags: FOREX, Futures Trading, Stock Investment, Online Stock Trading, Stock Broker, Options Trading, Margin Call, Commodities Trading, Short Squeeze, Short Stock, Margin Requirement About the Author:
Related ArticlesWall Street Traders Profit Taking Secrets! Forex Training For You: The Cost Wizefinder 6.0, an Enhanced Stock Trading Search Tool How to Profit From Volatility in the Forex Market? Forex Trading History 4 Main Risks Involved In Futures Trading Mb Trading Now an Integrated Broker With Wizetrade Common Scams Directed At Consumer Investors Got a Question? Ask.Ask the community a question about this article:Frequently Asked Questions Stock market Is meijob.com worth investing and what is known ... On what chart period is the 7,9,11 and 25 day ... What the best stock to invent this days? What is the best web site for the individual investor? Converter Q&A Powered by:
 Latest Finance ArticlesOverseas Property Buyers Loving the Credit Crunch Net Operating Income and Real Estate Analysis Financial Security Planning in Uncertain Job Climates 3 Things You Need to Know About Secured Credit Cards Stock Market Volatility Helps In Making Money Using Stocks Tips On How To Diversify Your Risk In The Stock Market Making the Most of Your Business Banking Relationship 10 Sound Budgeting Tips to Ensure Financial Freedom More from Kenji MatsuharaThe Beauty of Botox - Effect on Wrinkles (part 2) The Beauty of Botox - an Introduction How to Body Detox & Uses of Detox Foot Patches Essential Minerals in Infant Milk Formula The All Day Skin Care Plan Essentials Knowing Your Skin Type - Your Most Precious Assets Advantages and Health Application of Negative Ions Expels Harmful Wastes From your Body! |
|
|||||
|
Article Categories
|
|||||||
 Sign up for our email newsletterReceive updates, enter your email below
Use of this web site constitutes acceptance of the Terms Of Use and Privacy Policy | User published content is licensed under a Creative Commons License.
Copyright © 2005-2008 Free Articles by ArticlesBase.com, All rights reserved. (0.72, 16) |
|||||||
