What Are The Possible Risks Of Short Selling?

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It is a commonly known process that in the stock market, a trader invests money, buys stocks, and when the price increases, he sells them at much more rate than the price in which he had bought them. Now the difference between the cost price and the selling price is the profit that he has gained. But the market is not just one way. It has much more to offer.

Steps to bet and earn

  • One can score a profit by betting that the price of a certain stock which has been sold will decrease.
  • When that happens, the same traders again buy the same unit at a lower price. This particular design of trading is called short selling.

Is there any risk?

This type of selling can cost an investor with huge figures. A person can lose the principal amount of investment, and if the price keeps going the same direction, the loss will keep adding up without any limit. It only stops when the scale changes its ascent or descent over which the bet was made.

The worst-case scenario

The loss of such a kind can leave an investor’s account empty and even make him owe his brokerage money.