Investopedia says, "A short position is the sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value."
How do you profit from this? Are there other key concepts that I need to know before I understand this definition? I get, "buy low, sell high", that's an obvious strategy, but how do you "buy a bet that it will go low"? What are you actually purchasing? How is it profitable?
I sell you 1 share of company A at the mkt price today of 10, but will deliver in 3 months. I never actually bought the share i just sold it to you at that price.
i wait 3 months and company A's stock price has dropped to 5, i buy the share i sold you and actually sell it to you at 10, doubling my money.
simple as fuck but you get the gist
>>1112849
How can you sell something that you don't own? Why would the person buy it in 3 months for 10 if they can just buy it for 5?
>>1112856
your broker borrows the shares (for you)
>>1112856
yeah i fucked my first example it was a little skewed for common stocks and is actually a futures example. Taking delivery in 3 months would work with a futures contract not a stock, they lock into the price today but take delivery of the product in 3 months. (futures contacts hold an underlying asset such as soybeans or oil....)
For stocks you actually sell a borrowed stock at the market price today. You borrow the stock from your broker.
so...
i sell you 1 share of company A at the mkt price today of 10. i actually never owned this share, i simply borrowed it from my broker and sod it straight to you. In 3 months the stock is now worth 5 and i buy my share back for the broker (covering my position)
i sold a share i never owned to you for 10 and bought it back at 5.
>>1112861
>>1112863
I'm sorry I'm still not getting this at all. What am I buying? A share or a borrowed share? What's the difference? Do I own the share once I buy it from you, even though you borrowed it when you sold it? What happens if the price goes up? How does the ownership work? How is this different from borrowing money to buy stock?
I think I'm overthinking it because it seems too good to be true that you could just sell something that you don't own and profit from it.
>>1112878
you've had a confused example unfortunately
you borrow some shares you want to short with an agreement to return those shares... in return for being able to borrow those shares you'll pay interest to the person lending them to you (via your broker - usually big long only funds will lend the shares)
you then sell those shares on the open market... you now have a 'short' position because if those shares decrease in value you can profit as you can buy them back for less than you sold them for... however if they increase in value you'll make a loss as you'll have to pay more for them than you sold them for
for example you borrow and sell 100 shares of company X for $50
company X's share price falls to $40
you buy 100 shares of company X at $40 to close your position (returning the shares, via your broker, to whoever lent them to you)
your profit is $1000 (($50 - $40)*100), minus whatever interest charges you had to pay to borrow the shares
>>1112878
>too good to be true that you could just sell something that you don't own and profit from it.
that is exactly whats happening.
>What am I buying?
A normal share on the stock market
>A share or a borrowed share?
A share.
>What's the difference?
None if youre the purchaser. If youre the guy buying and holidng the stock you could be buying it from either a guy who holds the stock already and is selling out of his position or youre buying it from a guy who doesnt own the stock and is borrowing it from his broker. You wouldnt know which and it doesnt make a diff to you.
>Do I own the share once I buy it from you, even though you borrowed it when you sold it?
yes
>What happens if the price goes up?
For you thats great, you have bought the share with the hope its price would increase so you can make money.
For the guy shorting its real bad. He thought the price was going down which is why he "shorted" it. So now hes sold you a stock for 10 that he borrowed at 10. the stocks now worth 15, well shit. hes sold it to you at 10 and has to buy it back for the broker at 15. He loses money.
>How does the ownership work?
IF youre the guy whos just bought it then you own it like any regular share on the market.
if youre the short seller than you have borrowed the share and must replace it to your broker.
>How is this different from borrowing money to buy stock?
Because the transaction is different. IF you borrow money from a friend and buy a stock, technically yes the stock is actually your friends. But you've BOUGHT it, meaning for you to make anything the stock price has to increase right?
with short selling youre hoping the price decreases.
Hope im helping here
You borrow the asset to sell it. You then need to return the asset later -
so it's in your interest to buy it back for lower price than you sold it in order to rerun the asset and make profit.
get it? fucking retard.
>>1112890
>You borrow the asset to sell it. You then need to return the asset later -
>so it's in your interest to buy it back for lower price than you sold it in order to rerun the asset and make profit.
You got it.
>>1112892
Apologies on the confusing first example.
>>1112892
keep in mind that when you're in a long position, the most that you can lose is 100% of your investment
if you're in a short position, you can actually lose a theoretically infinite amount as the price keeps going up
>>1112906
a long position is just buying and hoping it will go up
borrowing money to buy is 'buying on margin'
>>1112906
So if someone said he was long apple. It means hes bought and is holding apple shares hoping theyll go up in value.
if someone says hes short apple, it means hes shorted the stock (by the method that was explained earlier in the thread) and is hoping the price will decrease
And for once a thread on /biz/ tried to be helpful and informative and no one got told to buy ETH or suck dicks.
>>1112953
Unknown to most people, to properly short a stock you have to first suck dicks while simultaneously buying ETH. Then you can short.
>>1112953
This board is good when people have specific questions, or are just trying to define financial jargon. Shows us they're trying to learn on their own.
We just shitpost in "hurr durr, how do I get rich?" threads.
>>1112953
fucking faggot go buy ETH or suck muh dick
>>1112953
well the OP asked a question that warranted a serious reply... instead of shitposting the same retarded forex thread every other day etc...
>>1112953
Suck ETH and buy dick.
>>1112979
How dare OP do that.
How can I make $9.99 x 10^99 from the penny I picked up in the gym shower?
>>1112906
Long = buy now, sell later
Short = sell now, buy later
It's not hard
Stupid Question thread?
Stupid Question thread.
Does paypal accept PO boxes as a valid address?
Particularly, would they accept suites from tollfreeforwarding?
How does buying an ETF on robin hood work? How do I get returns on it? Does it get paid out in dividends?
>>1114041
After some research it looks like they are like stocks and you are supposed to well then for profit. Is that right?
First time having a serious job, and according to my W2 I made ~21K last year while right under 8K was withheld for taxes/social security/whatever the fuck else.
Meanwhile my dad is saying that I'll probably owe a few grand to the IRS on top of that, but I feel like he's trying to make me paranoid or some shit. For reference, I'm a single American guy with no dependents, still a student, and knows jack shit about how taxes work
>>1114730
Probably would help if I actually stated the question.
Is my dad full of shit and/or what kind of shit should I expect when my tax stuff is returned?
