short selling stocks the hot and sexy
strategy everyone seems to want to learn
these days
so in this video we're going to be going
over short selling for beginners
with all the low floats runners we see
going up 100
200 in june and july and even all the
stay at home tech stocks
like zoom docusign and peloton running
into earnings
a lot of people made money buying these
stocks
on the way up and that is the
conventional way people
know about profiting from the stock
market you buy low and sell high
but did you know you can profit from the
stocks
dropping in prices as well that would be
pretty beneficial and convenient
right when tesla stock is falling from
500
down to 300 or when the entire market is
selling off
short selling is an advanced strategy
that many experienced traders
take advantage of it's a little scary at
first for beginner day traders
but once you understand and master the
concepts
behind shorting you open your doors to a
whole different side
of the stock market that you can make
money from
in this video we'll be going over short
selling stocks for beginners
and which brokers are the best for
shorting
whether you have a small account or a
large account
it doesn't matter whether you are new
trader or experienced
or simply here for the bad jokes there's
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so short selling stocks is a much
riskier way of making money
in day trading when you compare that to
going long
and it's not entirely that
straightforward well
nothing in day trading really is anyways
to understand how to take advantage of
short selling
let's take a step back and talk about
going long
which is the conventional way everyone
knows about
how to profit from the market when you
are going long
it means you're buying shares of a stock
with the expectation that the company's
share prices
will increase in value so for example
let's say you bought 100 shares of a
stock
at eight dollars and when you sell the
stock at ten dollars later on
you make two dollars a share of profit
so a hundred shares
that's two hundred dollars that's pretty
simple right
well short selling is basically the
reverse of going long
to profit from short selling you make
money when the stocks are dropping in
prices
that's like you're betting on the death
of a company
essentially so to be good at short
selling you kind of have to be
a little jaded a little bit cynical and
need to have an eye out
for um [ __ ] in a stock market and
here's how short selling works
before i could even execute an order to
short sell
i need to make sure i can borrow stocks
to short
from my broker and once i have access
those shares to short
then i can open the shorts position by
selling
short basically i'm selling those shares
at market value
to somebody else buying them those
unfortunate soles
and if the stock i shorted drops lower
according to my plan i can close the
position
by buying to cover basically i'm buying
those shares back
at a cheaper price and i profit from the
difference
so using the same example if i short
selled
should sold or shorted the stock at 10
dollars
and buying the stock back at eight
dollars that means that profit
the difference of two dollars a share so
that's two hundred dollars of profit
with 100 shares see basically this is
the opposite of buying stocks
and you can see now that short selling
isn't your typical trading measures
where upon buying a stock you hope for
the continuous success of a company
and the increase of share values when
you're shorting you're essentially
thinking that this company is a piece of
and you should tank back down to earth
okay i'm just kidding they don't all
have to be turds
sometimes the stock prices just escalate
too much
and too fast and even if they are real
companies like tesla
apple or zoom we're just day trading the
intraday volatility after all
for each major breakout tire it's
healthy to see a pull back
and drop in share prices you must be
thinking now
short selling seems easy right wrong
while everyone out there seems to be
thinking that shorting is easy money
i need to explain to you the very real
and the potential risks involved with
short selling
first of all let's go over the downside
of short selling first
if my trade thesis on the short side at
ten dollars a share is wrong
and the stock actually goes up to twelve
dollars thirteen
and twenty dollars a share that means i
lose
over two dollars a share and potentially
even more
this is exactly what happened to one
trader joe
back in november 2015 who placed
an eighteen thousand dollar short
position
on ticker symbol kbio does that crazy
stock
bring a few bills for you i know it did
bring a few
margin calls kbio was a struggling
pharmaceuticals company
that's running out of cash and they did
announce that they are eventually
going to have to shut down their drug
operations
after seeing the news our trader joe
thought
the stock could actually break down even
lower
and dropping below two dollars a share
and on that trading day the stock closed
at around two dollars and seven cents a
share so our trader joe was short
around nine thousand to ten thousand
shares overnight
but guess what news came out after hours
that day
the martin shkreli squirty skirty
whatever the guy with a weird last name
he bought
50 shares of the stock from kbio
according to the press release he was
going to help the company
continue their drug operations as you
can see
this is explosive news for a
pharmaceutical company
nearing bankruptcy and you know what
happened when news came out
after hours the stock kbio
spiked over 800 percent to 19 dollars a
share
you see kbio was not just any stock
it's a low float stock poor trader joe
here
essentially got short squeezed for a big
loss
this is a very risky but very real
scenario
that could happen when we're shorting
stocks especially when the stocks are
these
trashy low float small cap companies
well shorting seems like a very
profitable strategy
i mean it is a profitable strategy it's
also very risky as well
like uncle ben said in spider-man with
great
short-term power comes with even greater
responsibility
of risk management he did say that
and this is very important to understand
when you're going long
and buying stocks your risk is limited
the most you could lose on a one
thousand dollars
investment from buying stocks is just
one thousand dollars
right you can't lose any more than that
because the most a stock could drop
would be
zero dollars not negative but when
you're short selling your risk
is technically unlimited because when
you're shorting a stock at two dollars
this stock could run to
dollars 10.50 dollars or even to the
moon
and that's why shorting could be very
risky because the potential downside
is unlimited think about our trader joe
and you'll get the idea here
when he shorted a stock at two dollars
and he got squeezed out at nineteen
dollars he essentially lost seventeen
dollars a share
and remember he had around nine thousand
shares so let's do the math here
minus seventeen dollars times 9 000
shares equals to half a lamborghini
trader joe basically got short squeezed
a short squeeze is when the short
sellers
holding the stock short are all forced
to buy to cover
for a major loss because the stock they
have predicted to fall in price
is actually running higher and breaking
out to the upside
sometimes the stock could break out for
50 cents or a few dollars
or like in this case for this low float
stock
kbio it actually rang up for over
nine hundred percent from two dollars to
nineteen dollars
remember if you or i or trader joe
sees a short setup on this bankruptcy
stock
we're probably not gonna be the only one
and when a stock is spiking like this
all the other short sellers
have to buy to cover their short
position for a loss just like we do
and that also adds fuel to the buying
pressure
on the stock and that will in turn also
force the stock prices going higher as
well
and this is why risk management is
especially important
when you're shorting stocks remember the
risk is technically unlimited
it could go up to twenty dollars fifty
dollars or over a hundred dollars
if it's a low float stock now the second
important downside of short selling is
the cost
just like all these low floats runners
like everyone wants to short
with a rising interest in shorting all
the short borrow and locate fees
have gone through the roof not all
stocks are free to borrow to short
yes there are stocks like roku apple etc
that are called easy to borrow and they
are usually free of cost
but for these small cap runners stocks
like we mentioned
earlier these stocks are hard to borrow
and brokers that have those shares
available for shorting
will charge you a premium to locate
those stocks to short
just like you and i the brokers are also
looking to profit
as well the cost to borrow these stocks
to short
are called locate fees or borrow fees
so these fees on the hard to borrow
stocks are quoted
on a per-share basis with a minimum of
100 share lots
so if the cost is 4 cents per share to
locate a stock short
and 100 shares that cost is gonna be
four dollars
and one thousand shares that will be 40
and keep in mind you have to pay those
fees
regardless of whether you lose or profit
from the short position
so imagine losing three thousand dollars
from being short squeezed on these
low float stocks and still have to pay
an
additional five hundred dollars in
locate fees
yeah that's that's not fun short selling
could be extremely costly
and that's why you need to learn how to
properly do so
and you want to have a decent account
size with a good
broker for shorting it's normal to see
locate
fees costing 10 to 25
of a trader's monthly profit and
sometimes even more
so let's talk about one of the most
commonly asked questions
in the comment section which broker did
you find those shares to short
my best broker for short selling is
cobra trading they give me
access to locate these hard to borrow
stocks
at a very reasonable price while many
other brokers i have
could charge me two times more or even
sometimes
five times more to short the same stocks
it's also worth mentioning that cobra
trading has a much
more flexible system when calculating
your swing overnight
short positions and it's usually much
cheaper than other brokers
who charge you three times or even six
times
their own locate fees when you are
shorting overnight
to open an account at these premium
brokers for shorting
you must have at least thirty thousand
dollars minimum
cobra trading is available for u.s
traders
as well as many other international
countries but at the moment
they do not accept canadians sorry about
that guys
if you're interested in signing up with
cobra trading
and get access to these hard to borrow
stocks to short
like i do you'll get an additional 25
off commissions with my link down below
25 off that's a really good deal
now for traders with a smaller account
on the pdt rule
and the canadian traders who also want
to short
trade 0 is my recommendation i do have
an account with them as well
but their fees are usually a lot higher
but if you want to be able to short
these stocks the locate fees are just
the cost of doing business
regular discount brokers like e-trade
interactive brokers
think or swim or robinhood they wouldn't
have any of these
hard-to-borrow stocks to short short
selling is definitely a very profitable
strategy
but i'm not saying it's guaranteed from
everything we talked about today
and the trader joe example you must know
by now
it could be very risky and costly at the
same time so tell me are you still
interested in short selling or is that a
strategy you're already trading
every single day and which brokers are
you using to short
let me know in the comment section down
below don't forget to drop a like
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bad jokes
thank you guys so much for watching as
always i'm the humble trader
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