Short selling stocks, the hot and sexy strategy, everyone seems to want to learn these days. So in this video we're going to be going over short selling for beginners, with all the low floats runners, we see going up 100, 200 in june and july, and even all the stay at home tech stocks like zoom, docusign and peloton running into earnings. A lot of people made money buying these stocks on the way up, and that is the conventional way people know about profiting from the stock market. You buy low and sell high, but did you know you can profit from the stocks dropping in prices as well? That would be pretty beneficial and convenient right when tesla stock is falling from 500 down to 300 or when the entire market is selling off short selling is an advanced strategy that many experienced traders take advantage of it's a little scary at first for beginner day traders, But once you understand and master the concepts behind shorting, you open your doors to a whole different side of the stock market that you can make money from in this video we'll be going over short selling stocks for beginners and which brokers are the best for shorting.

Whether you have a small account or a large account, it doesn't matter whether you are new trader or experienced, or simply here for the bad jokes there's something here for everyone, and all you have to do is to smash the like and the subscribe button as hard As you can sorry i'll be supplying just the bad jokes, but not your phones, if you break your screen so short selling stocks is a much riskier way of making money in day trading. When you compare that to going long - and it's not entirely that straightforward. Well, nothing in day trading really is anyways to understand how to take advantage of short selling. Let's take a step back and talk about going long, which is the conventional way everyone knows about how to profit from the market.

When you are going long, it means you're buying shares of a stock with the expectation that the company's share prices will increase in value. So, for example, let's say you bought 100 shares of a stock at eight dollars and when you sell the stock at ten dollars later on, you make two dollars a share of profit. So a hundred shares that's two hundred dollars. That's pretty simple right! Well short selling is basically the reverse of going long to profit from short selling.

You make money when the stocks are dropping in prices. That's like you're betting, on the death of a company, essentially so to be good at short selling. You kind of have to be a little jaded a little bit cynical and need to have an eye out for um in a stock market and here's how short selling works before i could even execute an order to short sell. I need to make sure i can borrow stocks to short from my broker and once i have access those shares to short, then i can open the shorts position by selling short.

Basically, i'm selling those shares at market value to somebody else buying them those unfortunate soles and if the stock i shorted drops lower. According to my plan, i can close the position by buying to cover basically i'm buying those shares back at a cheaper price, and i profit from the difference so using the same example. If i short, selled should sold or shorted the stock at 10 dollars and buying the stock back at eight dollars. That means that profit, the difference of two dollars a share.

So that's two hundred dollars of profit with 100 shares see. Basically, this is the opposite of buying stocks, and you can see now that short selling isn't your typical trading measures where upon buying a stock, you hope for the continuous success of a company and the increase of share values when you're shorting you're, essentially thinking that this Company is a piece of, and you should tank back down to earth. Okay, i'm just kidding they don't all have to be turds. Sometimes the stock prices just escalate too much and too fast, and even if they are real companies like tesla, apple or zoom, we're just day trading the intraday volatility.

After all, for each major breakout tire, it's healthy to see a pull back and drop in share prices. You must be thinking now short selling seems easy right wrong, while everyone out there seems to be thinking that shorting is easy money. I need to explain to you the very real and the potential risks involved with short selling. First of all, let's go over the downside of short selling.

First, if my trade thesis on the short side at ten dollars, a share is wrong and the stock actually goes up to twelve dollars. Thirteen and twenty dollars a share. That means i lose over two dollars. A share, and potentially even more, this is exactly what happened to one trader joe back in november 2015, who placed an eighteen thousand dollar short position on ticker symbol.

Kbio. Does that crazy stock bring a few bills for you? I know it did bring. A few margin. Calls kbio was a struggling pharmaceuticals company, that's running out of cash, and they did announce that they are eventually going to have to shut down their drug operations.

After seeing the news, our trader joe thought, the stock could actually break down even lower and dropping below two dollars a share and, on that trading day the stock closed at around two dollars and seven cents a share. So our trader, joe, was short around nine thousand. To ten thousand shares overnight, but guess what news came out after hours that day the martin shkreli squirty skirty, whatever the guy with a weird last name, he bought 50 shares of the stock from kbio. According to the press release, he was going to help the company continue their drug operations.

As you can see, this is explosive news for a pharmaceutical company nearing bankruptcy, and you know what happened when news came out after hours, the stock kbio spiked over 800 percent to 19 dollars a share you see, kbio was not just any stock. It's a low float stock. Poor trader joe here essentially got short squeezed for a big loss. This is a very risky but very real scenario that could happen when we're shorting stocks, especially when the stocks are these trashy low, float.

Small cap companies well shorting seems like a very profitable strategy. I mean it is a profitable strategy. It's also very risky, as well like uncle ben said in spider-man, with great short-term power comes with even greater responsibility of risk management. He did say that, and this is very important to understand.

When you're going long and buying stocks, your risk is limited, the most you could lose on a one thousand dollars. Investment from buying stocks is just one thousand dollars right. You can't lose any more than that, because the most a stock could drop would be zero dollars, not negative, but when you're short selling your risk is technically unlimited, because when you're shorting a stock at two dollars, this stock could run to dollars 10.50 dollars or even To the moon and that's why shorting could be very risky, because the potential downside is unlimited, think about our trader. Joe and you'll get the idea here when he shorted a stock at two dollars and he got squeezed out at nineteen dollars.

He essentially lost seventeen dollars. A share and remember he had around nine thousand shares. So let's do the math here minus seventeen dollars times 9 000 shares equals to half a lamborghini trader, joe basically got short squeezed. A short squeeze is when the short sellers holding the stock short are all forced to buy to cover for a major loss, because the stock they have predicted to fall in price is actually running higher and breaking out to the upside.

Sometimes the stock could break out for 50 cents or a few dollars or like in this case, for this low float stock kbio. It actually rang up for over nine hundred percent from two dollars to nineteen dollars. Remember if you or i or trader joe, sees a short setup on this bankruptcy stock, we're probably not gon na, be the only one and when a stock is spiking like this, all the other short sellers have to buy to cover their short position for a loss. Just like we do, and that also adds fuel to the buying pressure on the stock, and that will, in turn also force the stock prices going higher as well, and this is why risk management is especially important when you're shorting stocks remember.

The risk is technically unlimited. It could go up to twenty dollars, fifty dollars or over a hundred dollars if it's a low float stock. Now the second important downside of short selling is the cost. Just like all these low floats runners, like everyone, wants to short with a rising interest in shorting.

All the short borrow and locate fees have gone through the roof. Not all stocks are free to borrow to short. Yes, there are stocks like roku, apple, etc, that are called easy to borrow and they are usually free of cost. But for these small cap runners stocks, like we mentioned earlier, these stocks are hard to borrow and brokers that have those shares available for shorting will charge you a premium to locate those stocks to short, just like you and i, the brokers are also looking to profit.

As well, the cost to borrow these stocks to short, are called locate fees or borrow fees. So these fees on the hard to borrow stocks are quoted on a per-share basis, with a minimum of 100 share lots. So if the cost is 4 cents per share to locate a stock short and 100 shares, that cost is gon na be four dollars and one thousand shares that will be 40 and keep in mind. You have to pay those fees, regardless of whether you lose or profit from the short position, so imagine losing three thousand dollars from being short squeezed on these low float stocks and still have to pay an additional five hundred dollars in locate fees.

Yeah. That's that's not fun short selling could be extremely costly and that's why you need to learn how to properly do so and you want to have a decent account size with a good broker for shorting. It's normal to see locate fees costing 10 to 25 of a trader's monthly profit, and sometimes even more so, let's talk about one of the most commonly asked questions in the comment section, which broker did you find those shares to short, my best broker for short selling? Is cobra trading? They give me access to locate these hard to borrow stocks at a very reasonable price, while many other brokers, i have could charge me two times more or even sometimes five times more to short the same stocks. It's also worth mentioning that cobra trading has a much more flexible system when calculating your swing overnight short positions, and it's usually much cheaper than other brokers who charge you three times or even six times their own locate fees.

When you are shorting overnight to open an account at these premium brokers for shorting, you must have at least thirty thousand dollars. Minimum cobra trading is available for u.s traders as well as many other international countries, but at the moment they do not accept canadians. Sorry about that guys, if you're interested in signing up with cobra trading and get access to these hard to borrow stocks. To short, like i do, you'll get an additional 25 off commissions with my link down below 25 off.

That's a really good deal now for traders, with a smaller account on the pdt rule and the canadian traders, who also want to short trade 0 is my recommendation. I do have an account with them as well, but their fees are usually a lot higher. But if you want to be able to short these stocks, the locate fees are just the cost of doing business. Regular, discount brokers like e-trade, interactive brokers, think or swim or robinhood.

They wouldn't have any of these hard-to-borrow stocks. To short short selling is definitely a very profitable strategy, but i'm not saying it's guaranteed from everything we talked about today and the trader joe example. You must know by now it could be very risky and costly at the same time. So tell me: are you still interested in short selling, or is that a strategy you're already trading every single day and which brokers are you using to short? Let me know in the comment section down below: don't forget to drop a like to continue your subscription for the bad jokes.

Thank you guys so much for watching. As always, i'm the humble trader and i'll see you guys next week. Hey guys thanks for watching. I hope you enjoyed the video and the bad jokes if you want to see more day trading content, make sure to subscribe and follow me on twitter and instagram for more.

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