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How to profit from losses by trading the stock market

by , 19 October 2015

Trading the stock market isn't all about trying to make money from rising prices. You can also profit from falling prices too.

This is known as short selling or shorting.

So what exactly is short selling? And how can you do it?

Read on to find out more…


What is short selling?


The ‘conventional’ way of trading and investing on the stock market means going long. In other words, you want the price of a share to rise in value. You buy at one price and sell at a higher price for a profit.

But traders can also short the market. In other words, you sell a share you don’t own and buy it back at a later stage, hopefully at a lower price.

The risks of shorting the market are higher than going long. This is because technically the price of the share you short could rise and there is nothing to stop how much is may rise by. On the other hand, with a long trade, if it falls in value, the most it can ever fall to is zero.

As with all forms of trading, risk management is vital when you’re shorting.


How you can short the stock market


There are a variety of different ways you can short the stock market. All the trading instruments that are available have an option to short too. But you may find that you can’t short all shares you want to.

Here are the trading instruments you can use to short the stock market:

  • Single stock futures;
  • Contracts for difference (CFDs); and
  • Spread trading.

If you decide to put on a short trade, just ensure you manage your risk with stop losses.

So there you have it. How to profit from losses by trading the stock market.

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