Shorting – A New Concept In The Stock Market
Shorting in the futures market is when you sell first and buy later. This is indeed a concept that is considered by most of them to be very tricky. Shorting is something that is done by traders on a daily basis. Learn more about it here.
We are able to understand the general concept of buying first and selling later. But when we short sell in the market we sell first and buy later which is completely the opposite of how any transaction is done.
So why should you short the market?
Why would a trader consider shorting in the market? This is because the trader thinks that the value of the asset will go down in value. So when you think that the stock prices will increase you buy first and sell later. When you think that the stock prices will decrease then you sell first and buy later.
If you are new to this concept then all that you need to understand is that shorting is when you think that the price of the stock will go down. So you will first have to sell the asset which is done at a higher price and then buy it at a lower price. The selling price minus the buying price is what your profit is.
Shorting the spot trades
How does one short in the spot equity market? The trader first looks at the chart of a company and identifies a shorting opportunity. The trader feels that the stock price of this particular stock will decline in the future. Hence, short the stock.
The trader then starts to make money because of the falling prices. The trading platform lets you short. It is a method that is followed when you buy the stock, only that you need to click on the shorting button instead of buying the stock first.
So what will let you make a loss in this condition? You keep a stop loss when the stock prices do not go in your expected direction. So when you short the stock you expect that the stock prices will do down. Thus your directional view is that the price of the stocks that you have shorted will go downwards. You make a loss when the stock prices go upwards.
Stop loss on a short trade
The trade is shorted at the supply level. Thus the stop loss of the trade should be kept above the supply level. Take care to keep the stop loss a few ATR above the supply zone.