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Shorting     

AdieH - 19 Mar 2004 19:34

Hi, Can anyone explain in simple terms what shorting is and how money is made from shorting? Thanks in advance.

Maggot - 19 Mar 2004 20:03 - 3 of 3

It means selling shares and then buying them back at (hopefully) a lesser price after the share has gone down. Buy low - sell high. Only you do it in reverse. You do it if you think the price will fall.

The easiest way to imagine it is a customer coming up to you saying he wants an MG sports car and will give you 5200. You know where there is one for sale at 5000 - so you sell him the car on paper first, then later you go and buy the car for 5 grand, and sell it to him for 200 profit.

The snag is if the price has gone up to 5500 by the time you get there. Similarly, if the price of the share goes up you will lose money.

The main ways of doing it are via a spreadbet or a Contract for Difference (CFD).
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