Volatility is the nature of the market, it goes up and down real quick. Traders can earn simply when it is going up but what to do if it is going down. A day trader or daily trader cannot remain idle during the bearish days.

Therefore, during that time also there is a way to earn profit. It means with the bearish market and falling prices also you can earn money from the market. This trick or process is known as short selling in which a trader earns by the fall in the prices of trading assets.

What Is Short Selling?

When a trader notices that the price of the particular trading asset is going up. At that time traders can speculate on the fall in the prices. In short, earning profit from the fall in the prices of the assets is known as short selling.

It is an advanced trading strategy that is not practised by novice traders or beginners. It is also a bit more riskier than normal trading. Some traders also use short selling techniques to hedge against their long positions and reduce the risk.

Short selling includes trading with borrowed stocks because investors think that the value will decrease. After the decreased value they have to pay less and that will be the profit from trading.

Risk Associated with Short Selling

Traders who perform short selling are dealing with a bit more risk. This means there is a high chance that they might lose their money while short selling. Apart from the normal trading risk, these below discussed are some of the additional trading risks with short selling:

Short Selling with Borrowed Funds

Another name for short trading is margin trading. A margin account opens when you use short selling. That margin account lets a trader borrow funds from the broker and that money is used for investment. But there is minimum balance maintenance required for it.

Enter Trade at the Wrong Timing

Think twice or thrice before short-selling any of the trading assets. An in-depth technical and fundamental analysis is required before you short any of the trading assets. Therefore, even if the price of the stock is declining for the past month you need to study a lot about the asset.

The Short Squeeze

When a short seller covers his position by buying back their short position is known as a short squeeze. The increasing demand for the stock can lead to rising in the price of the trading asset. This will be a riskier position for all the traders in the market.

Regulatory Risks

There can be a chance that the regulatory authorities might ban that specific sector from short selling. This can cause a sudden rise in the prices of stocks in that sector. If this situation comes then there will be a huge pressure on the short sellers to cover their losses and square off their positions.

Against the Trend Action

It is the trend of all the stock markets that the prices of the stocks rise in the long run. Some rare exceptions face a fall in the prices. Therefore, if you are using short selling you are going against the trend of the market. You are betting in all the opposite directions and dealing with a high risk.

Some Top Brokers

If you want to trade in the market or perform short selling, you will need a broker. Online brokers have made the trading task a lot easier. However, choosing the right broker is itself a difficult task for traders.

We are here to help you with this and make your work easy. Here are a few of the leading brokers in the market that you can consider. But after this also you will need to compare to find the best. The brokers are:

• InvestFw
• Etoro
• FXtm

These are some of the leading brokers. They are ahead in the race because they offer many benefits for a trader. Benefits such as a demo account for all the traders in the beginning. After that, you can switch to a live trading account.

There are three types of live accounts that are silver, gold, and platinum. Use educational material and analytical tools to fetch the maximum profits from your trades.

The Bottom Line

Short selling is profitable during the bearish trend but it is very risky for a trader. There is a high risk of losing your trading capital as compared to the normal trading or long positions. Therefore, you should understand the concept and then start short selling if you find it safe. Do not short any stock before doing subsequent research about it.