Short Selling Stocks Basic Steps

The following is the basic steps of short selling stocks trading strategy:

  1. You borrow shares, but since there is a general rule in the United States that one must only borrow money based on shares up to 50 percent of the shares value, one must deposit 50 percent of the shares value in cash with one's brokerage firm.
  2. You sell them and the proceeds are credited to your account at the brokerage firm.
  3. You must "close" the position by buying back the shares (called covering) - If the price drops, you make a profit. Otherwise you make a loss.
  4. You finally return the shares to the lender.

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