Monday, May 16, 2016

What is Short Selling

Today, we’ll discuss another strategy that can help you trade better in the forex market. Hopefully, this knowledge can serve as a great tool for you to increase your profit potential in trading.

We’ll talk about how can you make profit from a decline in market prices.

Whoa, wait a minute, you may say. Is it really possible to generate profits from falling markets?

The answer is yes.

Yeah, you heard it right. Generating some profit despite the decline in the prices is possible, if you’ll learn how to use short selling. By now, you might have no idea what short selling is, but you don’t have to worry, as we’re about to discuss what it is.

Short selling is the process of selling a security or currency you’ve never even owned in the first place. With the hopes that the price will go down in the future, the trader basically borrows a certain stock or currency, sell it at the current price, and then buy it back at a later date to replace the borrowed security.

Say for example, you’ve decided to borrow 100 shares of Apple, which is currently valued at $90. At a later date, the demand for iPhone suddenly decreases, pushing the Apple’s stock price to go lower. Due to the low demand of the iPhone, the Apple’s stock went down to $85, which appears as a good time to buy back the stock, so you can return the stocks you borrowed to the lender. And since you bought back the stocks at a lower price compared to the value you’ve originally sold it to, you can bag a profit of $5 per share. From this transaction, you’ve earned a total of $500.

Despite the profitability of short selling, it also involves a high level of risk. It is important to fully understand the risks associated with it before you start short selling. 

Learn more about the forex market and further understand what is forex by reading our forex-related articles. Visit our official website: to find out who the best forex brokers are.

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