Short selling

The short selling strategy consists of selling shares that you do not yet own and then buying them when their price drops.

The broker lends you these shares, since he owns them. So you sell them at a price, and some time later you buy them cheaper to return the loan that the broker made to you.

This is a strategy in which you earn when the shares fall. Therefore, your analysis should tell you that it is very likely that the price will go down and determine at what time you will execute the short sale. This strategy is ideal for a change from an uptrend to a downtrend or already in a given downtrend but where there was a momentary rise.

For example: XX shares are currently worth u$s15. Then, given your studies, you sell 100 shares for a total of u$s1500. After some time, the shares are trading at u$s13.50 each, so you buy the 100 shares you owe the broker for u$s1350. Your profit would be:

Short sale (cash inflow to your account)= u$s1500
Buy 100 shares x u$s13,50 = u$s1350
Profit: u$s1500 - u$s1350= u$s150

The risks of short selling are that you do not own the shares, so you are obliged to return them in full. And if they go up, your operation will be with losses. It is important to use the stop, in case there is a great euphoria in the market and the shares go up too much.

Regarding the orders, you place a sell order and the money enters your account. Then to close that position you must place a buy order with the same amount of shares.