Forex - Short Selling Currency Market

Forex - Short Selling Currency Market

Forex - Short Selling Currency Market

Short Selling

The Short sell , "short sale" in English, is a stock transaction that involves selling a stock you do not own hoping to buy it at a price lower. This operation is a bearish bet on the future of a title you think is overvalued. This operation is considered risky, since you have to redeem this value at a higher price if your prediction of decline does not occur. If your prediction was correct, you can buy a course title lowest profit.

In general, dealers, ensure that the accounts are short sell are well capitalized and managed by people with some experience in stock markets. The sale proceeds will remain in the account with the dealer, plus a safety margin in case the title would increase in value, so you would make a loss. Although the technique is now highly computerized, here's an example that can give a simplified view.

Example: You find that Nortel shares are rising and you say that if you owned, would be the time to sell, even to buy them back later when they are returned to a lower price. The catch is that you do not have shares in your portfolio. Regardless, your uncle Ronald has 300 and he is willing to lend them to you. You hand them to your broker for him to sell and you wait until the fall to redeem shares. If you redeem at a price lower than your asking price, you pocket the difference (less the broker's commissions) between the sale price and the purchase price, and you restore the shares to your uncle Ronald.

If the shares go up, you lose money, because sooner or later you'll have to repurchase them at a higher price than your asking price. You will realize a loss of money by buying shares to make them to Uncle Ronald.

In fact, you do not need a rich uncle, because the broker can lend those shares, which makes the operation much simpler. In theory, it is risky to make short sell because there is no limit to price a security can be achieved and the short seller is exposed to unlimited loss. Instead, when you buy shares, we will not lose more than we put in there. So why take the risk of short selling? Because the titles that hang from the value in a soaring, often fall a lot and very quickly, which can generate handsome profits in a short time.

For novices, paris downward may be less risky by buying puts (options) or by-products which are assessed with the decline in underlying value.

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