Making Money in a Down Market - Shorting 101 |
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We buy stocks for long-term income and the potential for capital gain. The Buy equation when we acquire a stock is: Sell 1000 BHP at $33 = $33000 Hold 0 BHP with +$3000 P/L We short stocks for Hedging to insure the current value against a lower future price whilst still retaining the income or for capital gain in a falling market. We then borrow the instrument with the guarantee that we will buy it back in the future at a time that is convenient to us. Buy 1000 BHP back at $27 = $27000 $30000 (sell) - $27000 (buy Back) = $3000 Hold 0 BHP with +$3000 P/L There are several mechanisms to short including:
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