4 great ways to make money by short selling

Fsp Invest, 19 Dec. 2013

Tags: short selling, trading, spread trading, single stock futures, put options, cfds, trading instruments, how to short sell, shorting, how to short sell when trading, short trade

Short selling is a way to try and profit from to a share falling in value, rather than the conventional way of when a share price rises. You sell at a certain price and buy it back, hopefully at a lower price. There are four ways for you to do this. Read on discover four great ways to make money by short selling…

When you place a short trade, you hope that you’ll make a quick profit from the transaction, Gareth Stokes in Fear, Greed and the Stock Market explains…

This is one great advantage of trading over conventional investing: You can potentially profit when the markets are falling too.

Read on to uncover four trading tools to help you do just that.

Trading instruments that you can short trade

#1: An equity put option
This gives the buyer a right, but not an obligation, to sell a number (usually 1,000) of shares at a fixed price, for a premium a fraction of the actual share price, within a fixed period of time.

Any loss is limited to the cost of the premium you pay.

#2: A single stock future
Very simply, single stock futures are contracts to buy or sell the shares of a particular company at a predetermined date in the future. This gives you an efficient alternative to trading the share itself.

#3: A contract for difference (CFD)
A CFD is an agreement between two parties to exchange, at the close of the contract, the difference between the opening price and the closing price, multiplied by the number of shares specified within the CFD.

Although they replicate the price performance of an underlying share, they convey no right or requirement to acquire or deliver the physical shares.

A short seller can benefit from a falling share price, without selling the actual share itself.

#4: Spread trading
A spread trade is a form of trading that lets you ‘bet’ X number of cents or rands on which way a particular share will move – up or down.

You don’t pay any stamp duty or broking fees. The spread trading company makes its money on the bid offer spread. You don’t trade the shares themselves.

So there you have it, four great ways to make money by short selling.

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