Learning to Invest in Stock Market - Short Selling - What it is and How to Do It

Are you learning to invest in stock market? Keep reading because in this article I am going to teach you what short selling is and how to do it.

Learning to invest in stock market - short selling

Basically short selling is a method whereby investors make money when stock prices go down. Here are the steps an investor will go through to, "short".

· The very first thing you need to understand is that you do not need to actually own the stocks you want to short. Any stocks you want to short will actually be borrowed from your broker.

· You will start by borrowing stock on margin (this means you buy stock on credit from your broker) this stock comes from the brokerages holdings, other brokerages or one of their customers.

· You then sell these shares

· You must then buy back the stocks you borrowed and return them to your broker

· Here is the important part - if the price of the stock has dropped you can then buy the stock back at a lower price and make a profit on the difference.

Let's say for example you bought 5 shares of xyz at $5 a share, you then sell these shares for $25. Two weeks later the price has dropped to $3 a share, and you buy the shares back for $15 dollars. You return the shares to your broker and keep the $10 profit.

While shorting can be profitable it can also be very risky and should only be done by experienced investors. Three more things you need know are that.

· When you buy stock on margin you will have to pay interest on the amount you have borrowed

· If the owner of the stock you have borrowed wants to sell it you will need to return the stock, this is referred to as being, "called away".

· While you are holding the borrowed stock you will need to pay the lender any dividends that accrue.

These are the basics of shorting stocks. I hope you enjoyed this article on learning to invest in stock market, if you would like to learn about a killer stock market system please visit my website by following the links below.

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