Wednesday, July 6, 2016

How to Profit When Prices Are Going Down

If you are quite new in the trading world, you might think that the only way to gain a significant amount of profit from trading is to trade with booming markets. However, you should know by now that it isn’t true. The truth is, you can earn significant profits from financial markets, regardless if it’s in an upward or downward trend.

So, you might be asking, how might it be possible? The answer is simple: Short-Selling! This strategy is used by traders who wants to take advantage of the sudden decline in the financial markets, which makes them earn significant amount of profits while the market is in a downward trend. 

For those who doesn’t have any idea about what short selling is, just keep reading and we’ll explain to you what it is.

Short selling is the strategy used by most traders who wants to profit from falling markets. Basically, what they do is sell a security they don’t currently own, in hopes that the price of the security will fall further in the future. Once the price of the security falls to their desired level, they buy the securities back to return the borrowed asset. And since they bought back the securities at a lower price than what they initially sold it on, they’re making significant profits based on that price difference. 

For example, in hopes that Microsoft will go down in the near future, a trader borrows and sells 10 shares of the said company for $10 per share. A week later, due to the unsuccessful launch of the Windows phone, the price of the Microsoft’s stocks went lower, and it is now valued at $8 per share. Because of the significant price difference, the trader decided to buy back 10 Microsoft shares. Since it is now priced at $8 per share, the trader only has to pay $80 per share, which is $20 lower than what he initially sold it on. He then returns the shares back to the broker whom he borrowed it on, and gets to keep the $20 he gained from the said transaction.

However, you must remember that short selling, just like any trading strategies, carries a significant level of risk. Supposedly the price goes up instead of going lower, you will end up having to buy back the securities at a higher price, generating a significant amount of loss. 

It is important to be aware of the risks associated with trading before you start trading with a live account. 

Further refine your trading strategies and learn more about the forex market by reading the articles on our educational blogs. See who the best forex brokers are, visit to find out!

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