Hey everyone, so what's short-selling? People want to know what short-selling
is.. Basically, what it is, is it's a way to make money off an asset - any asset, as the
price is going down. Normally when you're trading and when I first
thought about trading and stuff, I always used to hear "Buy low, sell high." You know,
that was always the thing. You want to buy something, and I always expected that
as it goes up in price, you know, it becomes more valuable. So, I buy one thing
at $10 you know, and a week later it's worth $20, so I can sell
it for 20. It's a very simple kind of Maths - buy low, sell high. You make money as
the asset goes up in value. But you can also make money as the value of an asset
falls in value, and it's referred to as 'selling'. Now, there's a bit of a language
problem here - a little bit of a language problem. So, when you get used to
trading - when you start trading, some of the language that I used out in the
normal world, beforehand, you know - I'd say "Yeah I want to sell Apple," and I used to
think that meant I have some Apple stock, and I want to get rid of it, and change
that for money, and go away and do something with my money. But, when it
comes to trading, there's two different terms. So, if you 'open a sell position' in
Apple, it means you're opening a trade which is betting that the value will go
down, and as the value of Apple goes down, you want to make money off it as the
value goes down. You're betting against the price of Apple stock. That's when you
'open a sell position'. So, if I'm going to 'Sell Apple' - kind of, it takes a bit of
discipline from everyone, because it's context based - you've got to watch it.
People mix up these terms... But, a 'sell position' is generally making profit as
it goes down. If someone says "I'm going to sell my Apple," because they've got the
word "my" in there, they're probably meaning that they want to
close their position in Apple. That's the correct kind of technical term, you know.
You have a position - you could open a buy position or you could open a sell
position - it means you've opened a trade. You can change the word "position" for "a
trade", all right. So, you can have a "buy position" or a "Sell
position" - that's your positions open. Whenever you have either made enough
money from any of those positions, and you want to take the cash, you "close" that
position. Or, if you're losing too much money, and you don't want to lose any
more, you can also close that position. All right, so that's 'closing a position',
or 'closing a trade', all right. It means you want to get out of it.
You've got something open, you want to get out of it, and you want to take your
money and run, basically - do something else with it. A "sell position"... "A sell position."
not "closing a position", but "a sell position" or a "sell trade"
is different. That's the one where you want to make money as the value of something
goes down, okay. It's not that confusing. I'll show you why it's not that
confusing. Here I am, in 'Trade Markets' alright, really simple - let's say I go to...
Say I go to Gold - and here's the familiar button - just, when I want to open any
trade on any asset, I go to 'Trade', and at the top, we've got "Buy" and we've got "Sell"
Buy, Sell, Buy... They really couldn't have made it much simpler for us, alright. And
what this means, if you press 'Buy', it means you want to bet that the value of
the asset is going to go up, all right. This is the current price, all right - this is
the price that you can buy it at. Actually, it's not really the current
price, it's the current price plus their little bit of a spread fee. That's what
that price actually is, and you can tell that it's not the actual price because
look, if I press 'Buy', here's "Sell" - watch this price as I click "Sell".
You see it changing? All right - so, somewhere in the middle of those two prices, the "Buy" price
and the "Sell" price, there is the actual price of gold at the moment. If I buy it,
they already make me buy it slightly higher than the actual price - than
the market price. That's their spread fee. If I "Sell" it, I buy it at a slightly
lower price than the actual market price. That's their spread fee again, all right.
That's why that number keeps... that changes when you press these. So, if I want to buy
it, it means I bet the value will go up, and I want to make money as it goes up.
it's at 1319 - if it goes up to 1320, I'll have made some money.
Awesome. Now, if I want to bet that the value
will go down, all I do is I press "Sell", and as I press Sell, I buy it at 1318.60
If the value goes down to 1317, I'll have made money.
The converse is also true though - the other way is also true. So, when I buy, if the value goes up
I make money, and if the value goes down, I lose money. If I'm selling an asset, if the
value goes down I make money, if the value goes up, I lose money, okay. Now, what
does that mean? If you think about it, why is it more risky potentially when you're
selling something? All right, so if I buy it, it can go up infinitely from here. It
won't, do you know what I mean - well, not yet unless
everything collapses or whatever, but it won't go up, but it could go up to 3,000
yeah. The most it can go down is 1319.02 - then it's at zero okay. So, my risk on the
downside - that's how much risk I have, which is a lot, because usually, you know, I use
leverage with gold. But, if I'm selling, okay - it can go down to 0, in which case that's
the amount of profit I could make, because remember, I'm hoping the value
will go down. Profit. What's the potential downside? It's infinite. So, if it goes up to
3,000, you know, that's all loss for me. It won't,
but what I'm trying to highlight is a point. When you're buying, you set your
'Take Profit' above, and you set your 'Stop Loss' as a lower number. When you're
selling, your 'Take Profit' is a lower number, and your 'Stop Loss' is a higher
number, okay. I hope that makes sense, because if it goes up in value, and you're selling
you're losing money. It's fairly simple. I'm sure you understand it. Alright, so
how does that work? How in God's name does that work, where you can make money
selling something... All right, so when you buy, you buy it - if it goes up in value,
someone goes "Oh, I'll buy it now, I think it's going to keep going up in value." And you go
"Alright, you have it now - give me the money - give me the value for it."
yeah - I've made my money. Selling is a little bit sneakier, really, in ho w it
actually operates. Alright, so... A way to imagine it is - let's imagine that I've
been looking at Apple stock, alright. I'm looking at Apple stock, and I'm standing
next to my friend John, here. And John's also looking at Apple stock, and there's
a big crowd of people over here who are also looking at Apple, and talking about
Apple. Now, John and these other people, they all think 'Wow, Apple's doing really
well, man I think that new iPhone's great - look at this, what they're
releasing - I think the value is going to go up, it's looking rosy for Apple." But I,
sneaky guy, have heard some news. I've heard some news about the latest iPhone... I
haven't really, this isn't investment advice, it's just an example... But, let's
say I've heard some news - some advice, and this advice isn't so good.
This information isn't so good - I think the price of Apple is actually going to
go down, you know. These guys - this whole crowd here - John, and these other people ...
They're all clamouring - they all want Apple, and I have some secret information
that it's going to go down somehow, or gut feeling... So, I go over to the broker, and
say "Hey broker, could you just give me 100 shares in Apple? It's $10
a share, all right, so give me 100 shares in
Apple, and I'll give them back to you, okay? And I'll give you spread fees." I
mean really, that's what Etoro's making - it's always making the spread fees
whether we're buying, or we're selling, they make their spread fees. So, I go to the
broker "Hey man, lend me 100 shares in Apple" He goes
"Yeah, sure give them back to though!" okay I go "Yeah, of course
I'm going to give them back to you!" He gives me 100 shares in Apple, all right. I then go, and I sell
them to John. I go "Hey John.." Actually, he's my friend, I feel bad about John,
so I go over to one of the people in the crowd, and I say "Hey guys in the
crowd, I've got 100 shares of Apple." And
everyone's going "Oh my God, Apple's going to go up, Apple's going to go up!." So, they buy them off me. So,
I've just sold 100 shares which I borrowed off the broker. I sold them to
this crowd for $10 each - I've got $1,000, yeah. Now, what happens is that Apple's
price - I was right, my information was correct - so Apple's price starts to fall, all
right. So, I'm here with my $1000 from those 100 shares I
borrowed, and sold to the crowd. The price is going down - the price is going down
of Apple. It goes down to $5, all right like a couple of weeks later. It's $5 per
share, so I take my $1000, I owe the broker - remember, I don't him an amount
of money, I owe him 100 shares. That's what I borrowed off him. So, I take
my $1000 and I go over to the crowd, who are now like "Ah God, I want to
get rid of these - it's going down!" I go "I'll buy them off you." So I go over, and I
buy 100 shares for $5.00, okay. That's $500, all right. I go, I spent $500
on those shares... I take the shares - the 100 shares which I've bought for $5,
and I give them back to the broker. I've paid the broken the spread fee, and okay,
he's happy. Alright, so I now have - I've given him back his 100 shares. I
have $500 left. I sold them for $1000, they went down, when they went down
enough, I went and bought them back, and gave them back to him. It's left me with
$500. That's how you make money with the prices going down, in a sort of simple
analogy. Okay, so in that same analogy there, what happens if the price goes
against me? So, I've just borrowed the 100 shares off the broker, I've sold
them to these guys for $10 a share... I've got $1000, alright. Now, I have to give
the broker back his 100 shares. The broker is always going to get paid, all
right. They're not like the nice guy, just doing me a favour. The broker's going to get his
money, all right - every time. So, I owe him 100 shares. So, let's say the price actually
goes up instead of going down. I've sold them at $10 each - I've got $1,000
alright. So, I'm waiting two weeks and now the price hasn't gone down to 5, it
was 100, I was expecting it to go down - it's gone up to 15...
I've still got to give this broker guy his 100 shares back, so I've got to
buy them back now. So, I have to go to that crowd, cap in hand, I have to spend
that $1000 I made, and I also have to fork out another $500
of my own money because it's now - they're 15
each, and I need to buy a 100, you know. So, I have to actually pay out
an extra $500... So, that's how you'd lose money in that situation.
Either way, I have to give this guy his 100 shares back, and I can't, you know
just make the money out of nowhere, or change the market or something. Literally, if the
price goes the wrong way, I'd have to buy those shares back, and I have to give
those 100 shares back to him. That's what happens in that analogy if
it goes against me. Either way, he's getting paid - the broker's always getting paid. Now
why doesn't the broker charge me interest or something - to borrow those
shares? On other places, I think they actually do. On Etoro, it seems to be it's
just the spread fees - they just want their spread fees. If I open a 'buy' trade, I pay
them spread fees. If I open a 'sell' trade, and do my sneaky business, then I also
owe them spread fees. I always pay spread fees. Now, do I have to go through this
complex process of buying from him, selling to them, getting it back, taking it...
No. I just press 'Sell'. If the value goes down, I'm making money. If the value goes
up, I'm losing money, you know. If I lose too much, they'll stop me out of the
trade. It's that simple, but I just wanted to explain the mechanics of 'how can that
happen?' How can it be done? You borrow from the broker, you sell to someone at
that time, you wait till the value goes down, you buy the assets back, and give
them back to the broker. You keep the difference. So that's kind of how selling
works. There's a lot of people talking about how, you know, there might be a
'correction' - there might be a this, there might be a... A 'correction' is a way of saying
the market goes horribly wrong, by the way - the price goes down. They never say
"I think the price is going to drop." They always try and coat it in a more
positive way of looking at it... "There's a correction." So, even when it goes down,
it's correct, somehow, you know. So basically, if there's
a correction, the whole value goes down, this is a way that people can make money,
even if the value of assets is going down. It is risky though, I mean I listen
to people - especially around Cryptos. If you're going to sort of do ...
I tried initially, when I first started, this idea of like I buy low, sell high.
Then, when I see it going down, I short sell it on the way down, then I try and
close that trade. Then I try and buy it as it goes up, then I short... The problem is
it's very hard to time where's the top, where's the bottom, where's the top...
I found it super difficult. So, all I'm doing at the moment is copy trading,
and kind of leaving those decisions to the three people I'm copying. Jay and here
Mr Thor, Fastik and Jay. Look, they're doing well. I'll give an update
on what I've been doing, because I've added some money to them, but at the
moment I'm not trying to do that - I'm not trying to buy and sell. And I hear Jay, you know,
he was trying to short Ripple, and he got so much flak for it, he really did. People
were just going nuts. But anyhow, even he says, you know, how difficult it is to short
Cryptos because they move in such a volatile way. It's very hard, you know. I
found it as well, very very hard to judge where to buy and sell, so I'm not doing
that anymore. I'm going with the general
overall trend, rather than, you know, the spikes in that trend do you know what I mean?
Instead of going buy, sell, buy, sell, buy, sell, buy, sell, I'm just going to buy...
Do you know what I mean - and trying to disregard this. I'm going with the longer-term trend. But, that is
how you do short selling on Etoro. It's actually fairly simple. You
just click the 'sell' button, put your trade, and realise that your
'stop-loss', and your 'take profit' will be the other way around, against the
value of the stock. There we go.