Shorting Stock Is A Valid Investment Strategy

Discussion in 'General Trading Discussion' started by longtermbull, Feb 16, 2017.

  1. longtermbull

    longtermbull Administrator Staff Member

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    When the subject of shorting stock is mentioned it can often be mistaken for some kind of underhand attempt to make a fast buck. We often hear criticism of those shorting particular stocks amid suggestions they are “messing with prices” and creating artificial markets. However, shorting stocks is actually a very valid investment strategy and a vital element of the stock market.

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  2. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Shorting certainly does have its purpose in markets. Short sellers help maintain some degree of market efficiency, and shorting does also present investors and traders with another way to potentially profit (or lose) from movements in markets and securities.

    But any individual investor or trader who decides to use shorting needs to be aware of the additional risks - markets tend to have an upside bias, for one... and stocks, commodities, and markets in general have theoretically unlimited upside (or loss for a short seller) potential - while the downside (or profit for a short seller) of any market or security is limited to 100% on any given long investment or trade.
     
  3. longtermbull

    longtermbull Administrator Staff Member

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    Otherwise known as arbitrage, bringing stocks back into line with their “real value”.
     
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