2022-05-19 10:53:11
What is Short Selling? (contunation)Those who expect crypto prices to fall on a future date can capitalise on their predictions. The method of shorting stocks is very interesting. Firstly,
an individual can sell shares that they do not own. Traders would need to
borrow these shares from a broker, thus opening a position. Brokers lend the shares to a trader with a promise that they will be delivered back at the time of settlement. The trader would sell these borrowed stocks at the prevailing market rate and wait for prices to fall. This is referred to
as shorting the position. When the prices drop, the traders buy back those shares to close the position. Thus, the objective behind short selling is to “sell high and buy low”.
If the crypto prices fall, traders make a profit based on the difference between the selling price and purchasing price. An ExampleWe borrowed 10 Ethereum (ETH) from a broker on April, 5 2022 at a price of $3348. On May, 17 2022, ETH fell to $2098.06. If we want to close the position on May, 17 2022, then we need to buy the same 10 ETH and return it to the owner - the broker. The difference between the selling price and the buying price is the profit.
$3348*10 = $33 480
$2098*10 = $20 980
Profit $33 480 - $20 980 = $12 500
It is short sale.
How to make a short sale?In the trading terminal or your broker's application, you find the necessary share, and select "Sell" instead of "Buy". Next, choose the price at which you want to make a deal, determine the number of lots and click "Yes".
A position with a minus sign will appear on your account. For example, if you sell 100 lots of Virgin Galactic, then this instrument will appear on your account with a position volume of -100 lots.
At the same time, an additional amount of money will appear on your account, which you will receive from the sale of shares. This money cannot be disposed of and until the short position is closed, it will remain “virtual”. The broker reserves them so that the short position is guaranteed to be closed, and you can buy back and return the borrowed shares.
When the price of the shares sold by the investor decreases, the short position must be closed. To do this, you need to buy a similar number of shares and they will automatically go to pay off the debt to the broker.
Any questions?#Short
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