We all have to start somewhere, so don't be discouraged on people saying you shouldn't do it because you don't know enough.
You probably know what shorting is, but if not, it is selling a stock (you don't own) and hoping it will sink in price so you can buy it back cheaper and pocket the difference. This is called "covering" your short.
To short, just tell your broker that you want to sell short xxx shares of whatever stock you pick. He will borrow it (if available), sell it, and put the proceeds in your short account (assuming that your account is on margin and setup to short. If not, ask your broker to change your acct's status). BTW, you can't spend the proceeds until you cover for a profit (hopefully).
When you want to cover, buy the same number of shares and your broker will cover your short position and if you guessed right, you have a net profit in your account.
I am not going to bore you with the caveats and possible horror stories (Yes, your upside potential is unlimited. Yes, you should put in a stop loss order in case it shoots up when you are not looking.), but you can get some good advice in books and online.
My advice is to pick some stocks that you think are due for a fall and paper short them for a few months and see how your guesses work.Shorts win some and lose some like longs, but doing your homework can keep the balance in your favor.
Carl Yee |
