Short Selling: How you make money with
Short Selling is a fundamental financial transaction for all those who trade or invest. Unfortunately, many beginners completely ignore even the possibility of Short Selling and therefore loose the opportunity to make money when the markets go down.
This is precisely the great potential of Short Selling: generating profits even when the markets are negative.
In this article we will explain what Short Selling is and how best to use it. Since not all trading platforms allow Short Selling, we will review the best platforms that offer this opportunity.
Among them, it is a must to immediately report eToro: it is perhaps the easiest platform to use and even allows you to automatically copy all the trading operations of the best traders in the world (in real time) thanks to a patented software.
In practice, thanks to eToro it is possible to obtain the same results as the best traders in the world even if you really start from scratch. And you can even take advantage to learn how to trade by watching live what the best traders in the world are doing.
You can sign up for free on eToro by clicking hereIndex
What is Short Selling
For those who are interested in making money with online trading, and do not want to waste time with theory, we can immediately define Short Selling as a speculative operation that generates a profit when the price of a financial security goes down.
Just operate with a trading platform that offers this type of transaction and click on the Sell button, of the security that you want to sell short, to get a profit in the case the price drops. By the way, the best trading platforms usually offer excellent phone support services and therefore there is no risk of making mistakes.
Those who have chosen to copy the best on eToro do not even have to worry about understanding what short selling is: you just have to choose which traded is worth to copy, the platform will do all the work for you.
The Theory
Made this necessary premise, we’ll explain, in simple words, what short selling is. If you are eager to make money on the stock market, you can directly skip this paragraph and go to the reviews of the best trading platforms that support this operation (beware that they are not all).
Selling a financial security “Short” means selling a security that you do not technically have, with the promise to give it to the buyer after a certain period of time.
Suppose a security is listed on the $ 1000 market and suppose to sell it short. The buyer expects, at the close of the transaction, that we will deliver the title to him, in return he will pay us $ 1,000.
The stock goes down, loses 10% and is therefore worth $ 900. We therefore decide to close the operation: we buy the asset (now it costs only $ 900) and we deliver it to the buyer who pays us $ 1000. We made a $ 100 profit.
Short Selling with CFD
The best trading platforms provide traders with a simplified financial instrument, CFDs, signed by Contracts for Difference.
A CFD is a financial contract whose price is linked to that of a security, called the underlying.
For example, the CFD on Amazon shares always has the same price as Amazon’s shares.
With the CFD you can perform two operations: buy, to make money when the price goes up, and sell, to make money when the price goes down.
Among other things, leverage can also be applied to CFDs, to further multiply profits. It is thanks to the leverage that the best trading platforms allow you to start with a really small investment.
Those who make the (wise) choice to use CFDs do not have to worry about the details: they just need to make a prediction to decide whether it is better to buy or sell short.
Best Online Trading Platforms
The best online trading platforms offer the possibility of short selling thanks to CFDs. Since not all platforms offer this possibility, we have decided to publish our list of recommended platforms.
We have carefully selected all those platforms that are also simple to use for beginners and completely free, without commissions.
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Platform: etoro Min. Deposit: 50€ License: Cysec |
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Platform: xtb Min. Deposit: 100€ License: Cysec |
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Platform: iqoption Min. Deposit: 50€ License: Cysec |
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Platform: ubrokers Min. Deposit: 250€ License: Cysec |
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Platform: trade Min. Deposit: 100€ License: Cysec |
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72.30% of retail CFD accounts lose money
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Platform: forextb Min. Deposit: 250€ License: Cysec |
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eToro
eToro is a trading platform appreciated by beginners. It is authorized and regulated, simple to use and above all it offers the possibility to automatically copy the best traders.
How is it possible? Thanks to the patented Copytrading software it is possible to identify the traders who in the past have obtained the highest profits with the lowest risk. These data are obviously certified by eToro.
Once found, the best traders can be selected and the eToro software will take care of replicating all their operations in real time.
In practice, the beginner who signs up on eToro can get from the first day the same results as the best traders in the world and does not have to worry about anything, only to select the traders to copy.
You can sign up for free on eToro by clicking here.You can learn more by reading our eToro review.
ForexTB
ForexTB is an excellent option for those who start trading online: it is completely free and does not charge any fees.
Beginners find an extremely intuitive and simple to use interface and are assisted (free) on the phone by a real trading expert who provides valuable informations.
All subscribers can download an excellent guide, completely free, which explains how to trade from scratch. The guide has had unprecedented success in Europe, with hundreds of thousands of downloads. The reason for this success? It’s free, while other guides are expensive. It is very practical, so it doesn’t waste time with theory, it explains how you make money. And it is also suitable for beginners because it does not use technical terms and explains things in simple words.
You can download the ForexTB course for free by clicking hereIf all this is not enough, ForexTB also offers the possibility to trade for free with a demo account, unlimited and without restrictions. The advantage of using the demo account is that of experiencing, using virtual money.
You can sign up for free on ForexTB by clicking hereYou can learn more by reading our ForexTB review.
Iq Option
Iq Option is a platform very appreciated by those who start playing the stock market because it offers the possibility to start with a capital of just 10 euros (the other platforms usually require 250 euros) and because it is very simple to use.
All subscribers can access the teaching area of the Iq Option official site which contains hundreds of free video courses. These courses are the perfect solution for those who want to learn online trading in a simple and free way.
Iq Option also offers an unlimited and unconstrained demo account, always available for free to all members.
You can sign up for free on Iq Option by clicking hereYou can learn more by reading our Iq Option review.
The importance of Training for Online Trading
Short selling, unfortunately, is not known by many of those who start trading online.
These beginners often lose money or otherwise fail to take advantage of all possible profit opportunities for their ignorance.
For this reason, we recommend starting to read at least one trading book. It is not even necessary to spend money, since the best trading book is the one given by ForexTB and can be downloaded for free by clicking here.
Short Selling: when is forbidden
In certain particular market conditions, supervisors may prohibit the short selling of stocks.
In practice, when the stock market falls a lot for a serious cause (for example, the crisis generated by the Coronavirus), regulatory bodies can block the possibility of making short sales on the stocks.
These measures aim to stem the stock market crashes but according to many experts, they are ineffective. The stock market goes down not because there are those who sell short but because investors are panicking and selling their stocks (not short).
In any case, it is essential to reiterate that those who work with CFDs are absolutely not affected by these prohibitions which instead affect those who buy stocks directly with platforms such as Fineco.
3 Short Selling Techniques
As we have seen, short selling requires the ability to exploit the market when it goes from higher prices to lower prices. The steep learning curve intimidates traders and investors, leading them to avoid it entirely, even in bearish markets.
But this classic strategy can be profitable if you know how to take advantage of upward and downward trends, as long as strict risk management rules are followed and times are carefully managed.
Of course, it is easier to profit from short selling in downtrends because, as Martin Zweig wisely says in his 1986 classic Winning on Wall Street, “the trend is your friend”.
Despite the advantage, short sellers are relentlessly targeted in bear markets, often trapped in violent compressions that blow up the most careful stop-losses. This reality check tells us that long-term profitability requires more than just throwing money on a falling stock.
Mastery of short selling requires simple entry strategies, perfect timing and defensive trading management. Sellers must also adopt rules that improve these strategies, while reducing the risk of being trapped in a short squeeze.
These are not foolproof because it is natural for sellers to incur “shock” losses from time to time, but the trick is to minimize these unpleasant parts, while finding aggressive ways to bring prices down.
Here are 3 short selling techniques to use
You can short sell at any time in a liquid market that has no particular restrictions. Theoretically, the broker must hold the title when another client takes the short position, but in reality, short sales without the corresponding inventory are now a widespread practice due to competitive commercial practices.
Profitable short sales tend to follow one of three techniques:
- Sell a pullback in a downtrend
- Enter within a trading interval and wait for an interruption
- Sell in an active decline
Of course, many traders choose to short sell to new highs, thinking that a stock has risen too high, but this is a recipe for disaster because upward trends may persist longer than expected from technical or fundamental analysis.
In fact, the wide offer of short sellers with weak positions during sharp rises, provides rocket fuel at even higher prices. It only takes a few upward peaks and these traders begin to close their positions, triggering a cascading effect that can add many upward points in a relatively short period of time.
Short Selling: the Ford example
Ford Motor showed three profitable short selling strategies in a single negative trend. The car manufacturer took advantage of the last stage of a double top bearish model that “broke” as they say in jargon, triggering bearish signals that traders can use to sell short.
The decline ended quickly, giving way to a rebound that didn’t work in support, allowing players who pull back to get on board. The price returned to its weekly low in an 8-day consolidation, encouraging range shorts to take positions.
Despite this perfect example, short selling revenue carries a significant risk that requires perfect timing.
Soros’ attack on the Lira and the Pound
In Britain, Black Wednesday on September 16, 1992 is now known as the day speculators “broke the pound”, which is an understatement created to describe the moment when they came together to force the British government. to withdraw the pound from the European Exchange Mechanism. Membership of the ERM was part of Britain’s effort to help unify Europe’s economies. Black Wednesday is probably a consequence of this effort.
One of the protagonists of that historical moment was George Soros, who with a short sale, managed to total record profits that went down in history. Soros made $ 1.5 billion in just one month by betting that the British pound, and several other European currencies, were priced too high compared to the Deutsche Mark.
The whole group made big money. Jones’ funds earned $ 250 million, while Kovner’s Caxton Corp grossed $ 300 million, but none made more than Soros, who liquidated $ 1.5 billion in that fateful month of September. The score made Soros’ legend and inflated his company’s coffers; assets under management rose to $ 7 billion, from $ 3.3 billion in mid-October 1992, and to $ 11 billion in late 1993.
Short Selling: Conclusions
Short selling is a speculative operation that allows you to obtain a financial profit when the value of a security falls.
Those who decide to trade online must know the possibility of short selling because otherwise they lose the opportunity to make money when the markets are negative and risk losing money in the long run. It really is one of the basics of trading.
Unfortunately, not all trading platforms allow you to sell a stock in the open: below is the complete list of the best that allow it.
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Platform: etoro Min. Deposit: 50€ License: Cysec |
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Platform: xtb Min. Deposit: 100€ License: Cysec |
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Platform: iqoption Min. Deposit: 50€ License: Cysec |
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Platform: ubrokers Min. Deposit: 250€ License: Cysec |
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Platform: trade Min. Deposit: 100€ License: Cysec |
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72.30% of retail CFD accounts lose money
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Platform: forextb Min. Deposit: 250€ License: Cysec |
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Short selling is a speculative operation that allows you to make money when the value of a financial security falls.
A Stock value of 1000. I sell it Short and the Stock drops to 900. I close the operation and collect a profit of 100.
Not all trading platforms support short selling. In this article we have reviewed some of the best trading platforms that allow for short selling.
In some serious crisis situations, the supervisory authorities (CONSOB or CySec for example) may prohibit the short sale of Stocks. However, these measures have no effect on those who work with CFDs.
I learned a lot by following this guide. Props to the writer of this article. The possibilities with short selling are basically infinite and I will start putting them in practice after reading this!