Can anyone explains how the principles of short selling works? and how do brokers make money on that?Thanks?
Answer:
it's like i'll buy 100 shares from someone and when the stock drops i sell them and will be credited to my account, for example a dollar. close it by buying back the shares at 50 cents. lastly, will return the 100 shares to that someone (the lender).
there i have the profit.
Brokers make money on the commission on the sale, whether you buy stock or short sell.
Buying stock is known as 'going long' this is because you expect to hold the stock for a long time before it is worth selling in order to make a profit.
Selling stock you don't own is known as 'short selling'. This is because you expect the price of the stock to go down in the immediate future and buy back the stock you already sold at a lower price. Hence the name.
short selling --its the opposite of buying long- when you buy long and the price goes up - you make money -now think about where that money comes from - it comes from folks who are losing money from the selling short of that same product which is rising in price - you are right by buying - they wrong and losing on it - you get the difference. when you sell short and the price goes lower-- the guy who bought and is long is losing- his money goes to you - cuase you are on the correct side of the trade.
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