Short selling is an attractive strategy to profit from during market downturns, while you cannot deny the risks attached with it.
In times of market turmoil, there are still opportunities to generate returns from stocks. In the simplest form, short selling is selling shares that you don't own.
It is a simple process where a stockbroker will first loan you shares that you can sell. When you sell short and borrow shares, think of it as having a loan of shares that you must return at sometime in the future. Short selling is riskier because there is no limit to your losses (stocks can keep rising) as opposed to when purchasing stocks, your losses are limited to your initial investment (if the stock goes to zero).
There are various ways to tackle how to short sell the shares in the best possible manner; to gain the most is to proceed with caution, use stop orders, understand how to read the margin, look at sales and profit and don't get greedy. Short selling is also one of the ways you can further success in hedging.
Wimpy of the famous Popeye comic strip would have been a perfect short seller. The comic character was famous for saying he would "gladly pay next Tuesday for a hamburger today."
If you are a trader or wish to be one, this is one of the main concepts you must know, in times of economic depression.
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