When an asset decreases in value it is bound to be sold and that type of selling is short selling which can be in any form for example stocks or shares commodities funds and currencies. This term short sell is largely associated with big investors such as hedge funds and investment banks. Short selling came into limelight when in 2008 Hedge funds were stated responsible for causing the financial crisis which resulted in a collapse of a global banking system by selling the shares by short sell which caused a ban on his type of selling in so many countries to let us look at the science behind this type of selling.
Let us take an example to explain this suppose that there are two persons X and Y the first person X has shares in XYZ company and person Y thinks that these may fall then person X buys the shares from person Y. Y sells them at Rs 1 each and receives 100 rs then Y waits for the price of the shares to fall and when they fall he buys them for 1.50 rs each paying 50 rs for 100 shares which goes back to X through him and the difference is 50 rs the profit will be less than 50 after purchasing the shares this is the science of short sell.
Many people think that short selling is hazardous for the market but as it encourages to decrease which cause to lose jobs and bankruptcy of companies this statement is right but there are laws which are governed but have not been properly regulated in the past according to me short sell is not bad enough if the firm is using this technique carefully. Traders also take stock tips for short selling.
Short selling is helpful for the traders because it helps them to make money from the companies which they think of has over the value and can face difficulties in future and this also allows the traders to hedge the current position thus reducing risk. People get involved in short selling because it gives them opportunities as an investor because this technique helps the traders to make a profit even in falling market conditions traders can choose overvalued companies and can make a good profit from this type of selling.The best way to earn profits when the market is falling is short selling because the markets will always rise and fall and with the availability of trading opportunities, there is no reason for any trader to trade the upside of the share market when there are profits coming from both big and small market directions.
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