Stock Investing Strategies

Stock investments

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Things to Be Aware of When Shorting a Stock

Shorting a stock is simply the process of borrowing stock from your broker and then selling it. The idea behind this is that you can buy the stock back at a lower price at some point in the future. This allows you to take advantage of falling markets.

However, before you think about shorting a stock there are a few different things you should know. Below is a short list of things to know about shorting stocks

1. Can Be Good To Increase Your Profits

Fear and Greed were the top causes of the Great Depression and they are still with us today. Likewise the market will always have major ups and downs. If you are only accustomed to buying stocks then you are only playing one side of the equation and therefore leaving profits on the table.

Short selling may take a little bit more skill to master then buying stocks, but they can also be vastly help you to increase your returns over the long run.

2. You Do Have to Pay Dividends

A broker does not mind lending you their long term investments to short, however they still want to benefit from those investments. This means that if you do short a stock you’ll have to pay out any dividend that that stock pays.

Keep that in mind if you are investing into top dividend paying stocks that pay out a lot of money to their investors, you’ll be in charge of paying that. Some stocks are worth staying away from just for that reason.

3. Fast Moving

One other thing to remember is that shorting is a short term strategy. Stocks may fall a lot faster then they go up but they also go up a lot more often and more consistently. If you want to make money by shorting a stock you have to be accustomed to getting in and out of trades relatively quickly and cutting your losses short before any potential loss you do have is not going to break your account.

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