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How to make a profit by shorting stocks?
If the market is expected to fall in the future, sell high and buy low, sell the borrowed stock at the current price, buy it after the market falls, and then return it to get the profit difference.

Its trading behavior is characterized by selling first and then buying, like the trading mode of selling goods on credit in business. This model can profit in the wave band of falling prices, that is, borrowing goods at a high level and selling them, and then buying and returning them after falling.

Common functions of shorting include speculation, financing and hedging.

1, speculation

If the market is expected to fall in the future, sell high and buy low, and get the difference profit.

2. Financing

Shorting in the bond market and returning it in the future can be used as a way to borrow money.

Step 3 hedge

When the assets in a trader's hands are risky, he can reduce his risk exposure by shorting risky assets.

Extended data:

Implementation in each market

1, securities

If investors want to sell securities short, they need to arrange to borrow securities for settlement. Investors need to deposit enough margin as collateral, pay interest to lenders, and pay dividends to lenders when they receive interest. Lenders who lend shares will lose their voting rights.

In the past, a large number of shares were lent in the process of privatization, and short sellers sent people to control the voting of shareholders after privatization, which led to the failure of privatization and the great losses of the original shareholders. Therefore, many privatized companies will advise shareholders to take back the lent shares.

2. Foreign currency

Short selling foreign exchange is different from short selling securities. Buying and selling foreign currency involves a currency pair and buying and selling different currencies at the same time. Sometimes, short selling foreign exchange can charge interest.

For example, investors expect the yen to depreciate, so they borrow yen from banks and buy dollars. When the Japanese yen depreciates, you can convert this part of the US dollar into more Japanese yen to earn the difference. If the deposit interest rate of US dollars is higher than the loan interest rate of Japanese yen, investors can earn a spread (carry trade).

3. Futures and options

Futures and options contracts are not physical objects, and short selling is a normal transaction; When there are long positions, there must be the same number of short positions. For American options, investors can also establish short positions in stocks by borrowing stocks and exercising put options or performing contracts for call options.

4. Contract for Difference

Retail investors can buy put spread contracts instead of borrowing stocks to sell short. The advantage of this is that the handling fee is usually low, and there is no need to pay interest on borrowing stocks, but there are risks of tracking error, counterparty risk and high leverage. Investors face the possibility of being cut before the price goes in the expected direction. In addition, spread contracts can also be used to short foreign exchange, indexes, commodities and precious metals.

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