How Short-Selling Works

Most investors own stocks, profiting when they rise in value and losing money when their stocks decline. But for short-sellers, that basic dynamic is reversed, and you can actually profit when share prices decline.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through the basics of short-selling and what you need to know to be successful at it. Dan goes through the mechanics of short-selling with your broker, noting how you profit by paying less to replace borrowed shares after a stock price falls. He notes that with failed companies like General Motors (NYSE: GM  ) before its bankruptcy, short-selling was extremely lucrative. But with other high-flying stocks, including Netflix (NASDAQ: NFLX  ) and priceline.com (NASDAQ: PCLN  ) , short-selling was extremely costly. Dan concludes that before you use short-selling, you need to understand the risks involved and know how to protect yourself from potentially huge losses.

Take a look at the long side
Short-selling would have been disastrous over the past several years, and even those who simply stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2800999, ~/Articles/ArticleHandler.aspx, 11/27/2014 5:51:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement