How do you make money when the market is going down? People are traditionally trained to buy low and sell high in order to make money. But what do you do when that doesn't work anymore, short selling stocks? I know this was probably a very taboo topic. In 2020 and 2021, but hey guess what, if you don't use this kind of trading strategy to your advantage in 2022, you are missing out on some massive profits. Let's imagine for a second that you jumped into the stock market just a year or two years ago, when the stock market was extremely hot and everything was flying to the moon.

But now in 2022 the market is much different. There's a threat of global nuclear war, rising interest rates in the stock market is selling off for months now, and comedians can't even tell jokes at the oscars anymore without getting slapped. I guess i better watch my bath jokes now. So all this begs the question: how do you make money when the market is going down? People are traditionally trained to buy low and sell high in order to make money.

But what do you do when that doesn't work anymore? Well, the answer: is you flip and do the opposite? You sell high and then buy back low. This is what we call short selling we're starting a video series on short selling, how shorting works. How do you find shares of a stock to short the best short selling strategies and which brokers you should use whether you have a small account or a big account and many more topics so make sure you subscribe and ring that notification bell to be the first To know when our next video in the series come out, alright, let's first discuss why short selling. Let's say you went to a bubble, tea store and you were very impressed with your drinks.

The pearls are fresh and chewy bounces right off your teeth. The menu selections are creative, the milk tea smells great and the customers who drink the bubble teas are all extremely satisfied and share the photos on instagram really what the heck that was so satisfying. Really quick here comment down below right now and let me know your favorite bubble. Tea stores, you guys know, i love bubble tea and we have many great choices here in vancouver and if you've never tried bubble tea, we can't be friends until you do so.

So you say to yourself this bubble: tea shop is a company of the future and they're definitely going somewhere. I definitely should buy shares of this bubble tea shop when you buy or go long shares of a stock, you're betting that the stock is going higher. Essentially, your thesis here is the bubble. Tea company is going to get even better over time, but what, if you went back to the same bubble, tea shop a few years later and had a much different experience? The milk tea tastes powdery, the pearls are now soggy and the customer service just stinks like stinky tofu.

The experience now will make my ancestors cry. So you say to yourself: this company is garbage. They are definitely going out of business soon. Now, instead of wanting to buy shares of the company, you want to bet against it.

You can do so with short selling short selling is essentially betting against a company. You are making a thesis that, instead of going up the stock is going to go down. So if you were like me when i was brand new to day trading many years ago, i thought to myself man whatever i bought tanks immediately after and i always sell lows for a huge loss, and that was when i realized. I should just do the opposite and short sell.

Instead, now we understand the fundamentals of short selling. Let's talk about exactly how to short, sell a stock. Let's say you've identified the stock. You want to short, okay, let's not use bbt anymore, because that's a real company.

That's now used moderna stock. Most broker platforms do not have a short sell button. So if you want a short magenta stock, you have to press the sell button first in order to execute the short cell and open a short position on the stock. And when you want to close the short position, you will need to click the buy button to buy them back at this point, you must be wondering alright, shae.

Let me get a straight if i want to short sell, i start by selling something i don't own and i buy back something i don't have to get rid of it. Yes, but don't worry it's actually even more complicated than that and don't worry. I got you. In short, all you really have to know is sell high by low the exact opposite than when you are buying a stock.

Yes, when you are shorting a stock, you are essentially selling shares to someone else. First selling - something you don't have and to do so, you would have to borrow these shares. First from your brokers, some common brokers, where you can borrow shares so shorts are trade zero. If you have a small account interactive brokers, if you're shorting, large caps, but not small cap stocks, cobra trading or center point, if you have a bigger account and last but not least, robin hood - okay, maybe not robin hood, especially if they are going to suspend the Buy button, so the brokers i just mentioned are the ones i personally use to borrow shares too short, and these brokers - they let you borrow them out of the kindness of their hearts right.

Well, not quite in fact, they charge you a fee to do so because they're effectively loaning your shares and the price you pay for short selling. The stocks is called short locate or locate fees. Think of it like a credit card, except this one could actually make you money and among these brokers there are some that's great for easy to borrow stocks, and some are best for hard to borrow stocks, we'll dive into those in detail in the next few videos. So again remember to subscribe to learn more so, let's say you pay the locate fees to borrow 100 shares to short moderna stock and you click the sell button to short sell.

Then it's time to hold on to your deal, live and pray that the stock plummets, because every single penny that the stock goes down is money in your pocket and when you've had enough fun watching this stock drop to rock bottom. Well then, it's time to close your short position and collect those profits to close your short position, you will need to click the buy button buy-in to cover. If you are short 100 shares, then you need to buy back 100 shares. Remember the reason you have to buy back those shares is because you sold these shares that did not belong to you, since we borrowed those shares to sell in the first place.

We now have to buy those shares back from someone else to close the trade, except this time around you're buying shares of moderna at a much cheaper price than when you originally sold them. Hopefully now, let's talk about profit if you are short marginal stock at 178, when a stock opened red below prior days closed and the stock plummet to 177. If you were to close that short position here, you would profit one dollar a share which will be one hundred dollars of profit or around 14 bubble teas. However, if you believe gravity would take this stock down to where it came from, and you wait to buy those shares back until it hit 168 well, then we would make 10 a share, which would be a thousand dollars profit or 143 bubble teas.

I think it's pretty clear at this point: we should make bubble teas the world reserve currency. Okay. I know at this point we're both happy about shorting medina stock to buy food, especially in 2022, as the stocks keep on selling off. This sounds like a great trading strategy that will never fail right.

Well, not quite the biggest risk of short selling is the potential for unlimited losses. What does that mean exactly when you buy or go long, one share of marginal stock? For that say, 100, then that means the most you could lose is 100 in three days: sick in bed, because the lowest price a stock could go to is zero dollars. So you have to find risk, however, when you should sell one share of marginal stock for 100 you're betting, that the stock price is going under 100. But what if the stock ended up flying a lot higher than you had expected? What, if, at the next earnings reports medina, announced that they found the cure for cancer? Well, what if the business is getting into nfts? How high would the stock price go? 200, 400 or all-time highs of 500 or even higher to a thousand? The point is, we don't know, there's no limits to how high the stock price could go.

Therefore, it's an undefined risk for short sellers. If a stock you are shorting keeps on going higher, you could potentially get a margin. Call margin calls happen when your ex bag holder mike, is no longer able to carry these heavy bags for you just kidding. Am i gon na get slapped for all the bad jokes in this video? A margin call is when the broker tells you that you need to put more money into your account in order to maintain your losing position.

If you can't, the broker will then close out your trade and realize those losses for you. Some brokers won't even notify you ahead of time, because they have an algorithm in place that automatically closes out your trade when your unrealized loss is at a certain threshold, because the brokerage does not want to take on that risk margin. Calls are especially important to understand when it comes to short selling, especially if you are a new trader failure to follow your risk. You could risk blowing up your trading accounts and, if you want to learn more about trade planning and risk management feel free to check out the humble trader community down below.

Hopefully, this video makes the mechanics of short selling a bit easier to understand, and that is just one of the many short selling videos to come. I hope you had as much fun viewing this video as i did making it. Thank you guys so much for watching. As always, i'm the humble trader and i'll see you guys next time really what the heck! How do i feel like this okay was so satisfying.