Question by Wozza291: How is money made betting ‘against’ the market?
I understand how you can make money betting on the market going up. You would make a purchase, keep it, then sell it once the market goes up. What I can’t understand is how someone makes money betting on the market going down. Please explain.
Answer by MACD
By shorting stocks. This is done through a broker who sell’s you shares (that are carried in their inventory) with the stipulation that you must buy back the shares at market price latter.
Acme plumbing company is selling for per share. YOU decide to short Acme plumbing stock. It drops to per share….then you close the short (buy back the shares for ) [ less than what you paid]…making a 20% profit.
In this same example if Acme plumbing goes up to a share and you fear that it may go higher, you decide to close the short ( buy back the shares at market price of )…you will loose 20% on the deal.
You can short individual stocks or a broad market index like the S&P500.
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