A guide to short-selling with FINQ: Mastering the market

Let’s be honest: short selling has a bad reputation. The strategy is often shrouded in controversy, but its bad rap isn’t justified. The exact same logic applies to when you buy stocks and sell stocks. When you buy a stock, you believe in the business, its growth, and its success which will lead to an increase in the stock value. Conversely, what if you concluded that a certain business will not be successful, its business will shrink and therefore the stock price will fall? The same fundamental analysis can lead to two very different conclusions and therefore one can make lots of money both ways. Why ignore the opportunity to make money from stocks going south?  

Yes, the technical name of the opposite of just buying a stock is "selling short ", but it is just a technical name for the opposite of being positive about a stock.

By the end of this article, you’ll understand what short-selling is, what it entails, its risks, and its rewards. Ensure you read to the end to learn why a portfolio like FINQLAST can substantially simplify and enhance this typically complex and risky strategy. 

What is short-selling?

Let’s be honest: short selling has a bad reputation. The strategy is often shrouded in controversy, but its bad rap isn’t justified. The exact same logic applies to when you buy stocks and sell stocks. When you buy a stock, you believe in the business, its growth, and its success which will lead to an increase in the stock value. Conversely, what if you concluded that a certain business will not be successful, its business will shrink and therefore the stock price will fall? The same fundamental analysis can lead to two very different conclusions and therefore one can make lots of money both ways. Why ignore the opportunity to make money from stocks going south?

Yes, the technical name of the opposite of just buying a stock is "selling short", but it is just a technical name for the opposite of being positive about a stock.

By the end of this article, you’ll understand what short-selling is, what it entails, its risks, and its rewards. Ensure you read to the end to learn why a portfolio like FINQLAST can substantially simplify and enhance this typically complex and risky strategy.

How does short-selling work?

Short selling is a strategy used to profit off the fall in the price of an asset, usually a stock. Typically, it involves the following steps:

Short selling is a strategy used to profit off the fall in the price of an asset, usually a stock. Typically, it involves the following steps:

1. Borrow shares: An investor borrows a stock expected to depreciate (for example you borrowed 1 stock of NVDA ($694).
2. Sell borrowed shares: The stock is immediately sold at the current price (you get into your account $694).
3. Repurchase shares: The stock is later repurchased, hopefully at a lower price (you buy the stock at $600).
4. Return shares: The borrowed shares are returned to the lender.
5. Profit: The investor profits from the difference between the sale and repurchase prices ($694-$600=$94)