The domestic stock market is a market that uses a long mechanism to make profits. The opposite of the long profit mechanism is the short mechanism. However, the short mechanism is rarely seen in the stock market. It appears more in futures. in trading or forex trading. Let’s take a closer look at these two trading methods below.

1. Long mechanism

This trading mechanism means that investors should buy first and then sell in a transaction. In this way, only after the investor buys , and its price trend rises, only then can you earn the price difference through subsequent selling operations and make a profit from it.

Whether the transaction is profitable depends on whether we can earn profit from the price difference from the process of buying and selling. The long mechanism limits the buying and selling process to starting with buying and ending with selling. Ultimately, under this trading mechanism, if investors want to make a profit, they can only buy in a relatively low area first, and then wait for the stock price to rise before selling in a relatively high area. If the subsequent stocks fall, investors will Facing losses.

2. Short-selling mechanism

This trading mechanism means that investors should sell first and then buy to close the position in a transaction. In this way, only when the investor first After selling, the price trend falls, and only then can the price difference be earned and profited through subsequent buying and closing operations; this trading mechanism is widely used in zero-sum trading markets such as futures and foreign exchange.

The short-selling mechanism is a combination of operational methods adopted by investment banks to protect existing profits or take advantage of opportunities to profit from being bearish on the future market. At present, the main tools in my country's market are stock index futures and margin trading. Stock index futures refer to standardized futures contracts with a stock price index as the underlying object. The two parties agree to buy and sell the underlying index at a certain point in the future based on the size of the predetermined stock price index. Margin financing and securities lending refers to the behavior of investors providing collateral to securities companies qualified for margin financing and securities lending business, borrowing funds to buy securities, or borrowing securities and selling them.

The short-selling mechanism requires that the buying and selling process can only start with selling and end with buying and closing. Under this trading mechanism, if investors want to make a profit, they can only trade at a relatively high level first. If the price trend rises, investors will face losses.

Short selling can be divided into two categories from an active perspective. One is active short selling: it refers to the operational behavior of actively selling at a high price and buying back at a low price to obtain profits when investors anticipate that asset prices will fall. , such as short selling of stock index futures and short selling of securities. The principle of short selling is that investors use securities as collateral, borrow stocks from brokers and sell them, then return the stocks when they expire and pay interest. Short selling of stock index futures is a process in which investors sell futures contracts when they expect the stock index to fall, and then buy to close their positions when the stock index falls. Another type of passive short-selling refers to investors leaving the market when they expect the stock to fall, that is, selling the stock and holding the currency to wait and see.

Under the active short-selling mechanism, the main purpose of investors is to seek profit opportunities by buying low and selling high. Under the passive short-selling mechanism, the main purpose of investors is to avoid being trapped. What are the specific motives for reducing losses or maintaining liquidity? The short-selling mechanism all plays a role in reducing market risks. In comparison, the purpose of active short selling is to make profits, while the purpose of passive short selling is to reduce losses and maintain liquidity.

3. Participants in short-selling transactions

There are two types of participants in short-selling transactions, one is the subject and the other is the object.

The main body of short-selling transactions is the investor. Also known as short-sellers or short sellers. According to the different investment purposes and trading methods of short-selling investment banks, short-selling can be divided into three types: First, short-selling for speculative purposes, which means that the short-seller does not hold the stock himself and borrows A stock trades in anticipation that the stock price will fall. Take advantage of spread trading at expiration to obtain profits. This kind of short selling is highly speculative and risky. The second is technical short selling, which refers to operations carried out due to certain technical requirements. The third is hedging short selling. The purpose of this kind of short selling is to avoid risks and preserve value.