Honest question: how do you short? I’ve been hearing this forever but don’t truly understand how one can make money on value loss? Like don’t you need to own the stock to trade it? And if you own it, you buy it, and if it’s lower then you lose money.
Genuine question but a high regarded and artistic person.
Exchanges often let you speculate with leverage on price changes without ever owning the stock.
You can open long (buy) or short (sell) positions. And when you close it you do the opposite of what you originally did.
You provide a margin which is your cash to cover losses because the exchange is obviously not going to do that for you.
So say a stock is worth 100 dollars.
You open a short position and sell the stock for 100 dollars.
Stock drops to 90 dollars.
You close the position with a buy and buy it back for 90 dollars.
You pocket 10 dollars.
It's slightly more complex as you are borrowing money when you do this so each exchange has its fees and such which affect your 10 dollars profit. There's also spread which means that the cost of opening a position is slightly different based on whether it's a short or buy so you need there to be a significant spike in price before you realise a profit. This is all how the exchange makes money from you doing it.
In reality the vast majority of retail traders lose money this way and if you're asking for an explanation on how it works you'd probably lose money too.
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u/chocky_chip_pancakes 25d ago
Honest question: how do you short? I’ve been hearing this forever but don’t truly understand how one can make money on value loss? Like don’t you need to own the stock to trade it? And if you own it, you buy it, and if it’s lower then you lose money.
Genuine question but a high regarded and artistic person.