How do you make money when the market is going down. People are traditionally
trained to buy low and sell high in order to make money but what do you do
when that doesn't work anymore
Short selling stocks I know this was probably a very taboo topic in 2020 and
2021 but hey guess what...if you don't use this kind of trading strategy to your
advantage in 2022 you are missing out on some massive profits!
Let's imagine for a second that you jumped into the stock market just a year
or two years ago when the stock market was extremely hot and everything was
flying to the moon. But now in 2022 the market is much different there's a
threat of global nuclear war, rising interest rates, the stock market is
selling off for months now, and comedians can't even tell jokes at the oscars
anymore without getting slapped. I guess I better watch my bath jokes now...
So all this begs the question how do you make money when the market is going down
people are traditionally trained to buy low and sell high in order to make money
but what do you do when that doesn't work anymore well the answer is you flip
and do the opposite you sell high and then buy back low this is what we call
short selling we're starting a video series on short selling how shorting
works how do you find shares of a stock to short the best short selling
strategies and which brokers you should use whether you have a small account or
a big account and many more topics so make sure you subscribe and ring that
notification bell to be the first to know when our next video in the series
come out alright let's first discuss why short selling let's say you went to a
bubble tea store and you were very impressed with your drinks the pearls
are fresh and chewy bounces right off your teeth the menu selections are
creative the milk tea smells great and the customers who drink the bubble teas
are all extremely satisfied and share the photos on instagram really
what the heck
that was so satisfying really quick here comment down below
right now and let me know your favorite bubble tea stores you guys know i love
bubble tea and we have many great choices here in vancouver and if you've
never tried bubble tea we can't be friends until you do so
so you say to yourself this bubble tea shop is a company of the future and
they're definitely going somewhere i definitely should buy shares of this
bubble tea shop when you buy or go long shares of a stock you're betting that
the stock is going higher essentially your thesis here is the bubble tea
company is going to get even better over time but what if you went back to the
same bubble tea shop a few years later and had a much different experience the
milk tea tastes powdery the pearls are now soggy and the customer service just
stinks like stinky tofu the experience now will make my ancestors cry so you
say to yourself this company is garbage they are definitely going out of
business soon now instead of wanting to buy shares of the company you want to
bet against it you can do so with short selling short selling is essentially
betting against a company you are making a thesis that instead of going up the
stock is going to go down so if you were like me when i was brand new to day
trading many years ago i thought to myself man whatever i bought tanks
immediately after and i always sell lows for a huge loss and that was when i
realized i should just do the opposite and short sell instead now we understand
the fundamentals of short selling let's talk about exactly how to short sell a
stock let's say you've identified the stock you want to short okay let's not
use bbt anymore because that's a real company that's now used moderna stock
most broker platforms do not have a short sell button so if you want a short
magenta stock you have to press the sell button first in order to execute the
short cell and open a short position on the stock and when you want to close the
short position you will need to click the buy button to buy them back
at this point you must be wondering alright shae let me get a straight if i
want to short sell i start by selling something i don't own and i buy back
something i don't have to get rid of it yes but don't worry it's actually even
more complicated than that and don't worry i got you in short
all you really have to know is sell high by low the exact opposite than when you
are buying a stock yes when you are shorting a stock you are essentially
selling shares to someone else first selling something you don't have and to
do so you would have to borrow these shares first from your brokers some
common brokers where you can borrow shares so shorts are trade zero if you
have a small account interactive brokers if you're shorting large caps but not
small cap stocks cobra trading or center point if you have a bigger account and
last but not least robin hood okay maybe not robin hood especially if they are
going to suspend the buy button so the brokers i just mentioned are the ones i
personally use to borrow shares too short and these brokers they let you
borrow them out of the kindness of their hearts right
well not quite in fact they charge you a fee to do so because they're effectively
loaning your shares and the price you pay for short selling the stocks is
called short locate or locate fees think of it like a credit card except this one
could actually make you money and among these brokers there are some that's
great for easy to borrow stocks and some are best for hard to borrow stocks we'll
dive into those in detail in the next few videos so again remember to
subscribe to learn more so let's say you pay the locate fees to borrow 100 shares
to short moderna stock and you click the sell button to short sell then it's time
to hold on to your deal live and pray that the stock plummets because every
single penny that the stock goes down is money in your pocket and when you've had
enough fun watching this stock drop to rock bottom well then it's time to close
your short position and collect those profits to close your short position you
will need to click the buy button buy-in to cover if you are short 100 shares
then you need to buy back 100 shares remember the reason you have to buy back
those shares is because you sold these shares that did not belong to you since
we borrowed those shares to sell in the first place we now have to buy those
shares back from someone else to close the trade except this time around you're
buying shares of moderna at a much cheaper price than when you originally
sold them hopefully now let's talk about profit if you are short marginal stock
at 178 when a stock opened red below prior days closed and the stock plummet
to 177 if you were to close that short position here you would profit one
dollar a share which will be one hundred dollars of profit or around 14 bubble
teas however if you believe gravity would take this stock down to where it
came from and you wait to buy those shares back until it hit 168
well then we would make 10 a share which would be a thousand
dollars profit or
143 bubble teas i think it's pretty clear at this point we should make
bubble teas the world reserve currency okay i know at this point we're both
happy about shorting medina stock to buy food especially in 2022 as the stocks
keep on selling off this sounds like a great trading strategy that will never
fail right well not quite the biggest risk of short selling is the potential
for unlimited losses what does that mean exactly when you buy or go long one
share of marginal stock for that say 100 then that means the most you could lose
is 100 in three days sick in bed because the
lowest price a stock could go to is zero dollars so you have to find risk however
when you should sell one share of marginal stock for 100
you're betting that the stock price is going under 100 but what if the stock
ended up flying a lot higher than you had expected what if at the next
earnings reports medina announced that they found the cure for cancer well what
if the business is getting into nfts how high would the stock price go 200
400 or all-time highs of 500 or even higher to a thousand the point
is we don't know there's no limits to how high the stock price could go
therefore it's an undefined risk for short sellers if a stock you are
shorting keeps on going higher you could potentially get a margin call
margin calls happen when your ex bag holder mike is no longer able to carry
these heavy bags for you just kidding am i gonna get slapped for all the bad
jokes in this video a margin call is when the broker tells
you that you need to put more money into your account in order to maintain your
losing position if you can't the broker will then close out your trade and
realize those losses for you some brokers won't even notify you ahead of
time because they have an algorithm in place that automatically closes out your
trade when your unrealized loss is at a certain threshold because the brokerage
does not want to take on that risk margin calls are especially important to
understand when it comes to short selling especially if you are a new
trader failure to follow your risk you could risk blowing up your trading
accounts and if you want to learn more about trade planning and risk management
feel free to check out the humble trader community down below hopefully this
video makes the mechanics of short selling a bit easier to understand and
that is just one of the many short selling videos to come i hope you had as
much fun viewing this video as i did making it thank you guys so much for
watching as always i'm the humble trader and i'll see you guys next time
really what the heck
how do i feel like this okay was so satisfying
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