Selling short........ you believe a stock is going to go down. If you have the right type of account (margin account) the broker that does your trades will let you sell the stock even though you don’t own it. He loans it to you. So you sell 100 shares for 100 dollars per share. If the stock goes down to 50 you can buy the stock for 50 per share and pay off the loan from your brokerage firm. And you netted 50 dollars per share
If it goes up to 150 you have to buy it for 150 per share to pay off the loan. And you lost 50 per share..
The key is you have to have enough cash in the account all the time to pay off the loan. So you could sell other stuff you have in the account to keep the cash necessary. There is no limit to how high a stock can go, so your loss is unlimited. If it exceeds what you have in the account the broker will do a margin call and force you to liquidate your position (pay off the loan)
Thank you.
For all I am desperately trying to understand, your short but succinct explanation was one of the best.
I still am confused about this “borrowing” stock and all that is involved.
So far I have listened to Dan Bongino and Rush Limbaugh’s explanation. They were good but I still don’t understand it.
I am reading everything I can on it.
You are correct. With the price going bananas, some hedge funds must have been nearing bankruptcy. It couldn’t happen to a more rotten bunch of predators.
The biggest problem of all. They can run the stock up (infinite) longer than you can stay solvent. That is what happened with Game Stop and the big boys are going to make sure the little guys who did that pay for it. Watch.