Short selling (stocks): Difference between revisions
mNo edit summary |
mNo edit summary |
||
| Line 12: | Line 12: | ||
* Steps 1. borrow stock and sell at current price 2. buy back at certain date at present value 3. pocket difference | * Steps 1. borrow stock and sell at current price 2. buy back at certain date at present value 3. pocket difference | ||
{{#mermaid:graph TD | |||
subgraph "STEP 2. BUY TO CLOSE" | |||
SS1[SHORT SELLER]--MUST RETURN THE BORROWED SHARES-->2[BUYS THE STOCK AT NEW PRICE ex. $80]--MUST RETURN THE STOCK TO-->SO2[ORIGINAL STOCK OWNER] | |||
end | |||
subgraph "STEP 1. SELL TO OPEN" | |||
SO[STOCK OWNER]--LOANS TO SHORT SELLER usually for a fee-->SS[SHORT SELLER]--SELLS THE STOCK-->1[KEEPS THE CASH ex. $100 per share] | |||
end | |||
}} | |||
{{#mermaid:graph LR | |||
subgraph "PROFIT" | |||
3[SELL TO OPEN]--SELLS BORROWED SHARES FOR $100-->4[BUY TO CLOSE]--BUYS BACK STOCK AT <BR>NEW PRICE TO RETURN TO OWNER-->1[PROFIT = $20] | |||
end | |||
}} | |||
[[File:Short_(finance).png|alt=|frame|Schematic representation of physical short selling in two steps. The short seller borrows shares and immediately sells them. The short seller then expects the price to decrease, after which the seller can profit by purchasing the shares to return to the lender. (wikipedia)]] | [[File:Short_(finance).png|alt=|frame|Schematic representation of physical short selling in two steps. The short seller borrows shares and immediately sells them. The short seller then expects the price to decrease, after which the seller can profit by purchasing the shares to return to the lender. (wikipedia)]] | ||
[[Category:Social studies]] | [[Category:Social studies]] | ||
[[Category:Economics]] | [[Category:Economics]] | ||
Revision as of 21:27, 18 March 2024
"Short selling" of stocks is a way to make money from a decline in price of a stock over time.
- In other words, if the investor thinks a stock will lose value over time, the investor can make money via a "short sale"
- the concept is: "sell to open / buy to close"
- Borrow a stock from someone else
- usually from a stock broker
- "Sell to open"
- = Sell the stock that you have borrowed at current prices
- "Buy to close"
- = Buying the stock back later at a cheaper price (hopefully)
- Steps 1. borrow stock and sell at current price 2. buy back at certain date at present value 3. pocket difference
.png)