Although we often think of Wall Street as a place where pieces companies are bought and sold, there are a number of other ways that investors can play their money. One such way is by doing something know as shorting a stock.
When you are shorting a stock you are essentially making a bet against the success of that particular company. You are saying that you believe that the stock price will decrease in a short period of time. The way that this is done is by ‘borrowing’ the shares in the company that another person holds and selling them. Then, if the price of the stock goes down, you purchase the shares back at the discounted price and pocket the difference.
In order to be able to start shorting stocks, you are going to have to meet certain requirements set forth by the individual brokers. These requirements usually revolve around how much money you must maintain in your account and how much investing experience you have. The broker wants to make sure that you maintain a certain amount of money in your account because you may be wrong with shorting a stock. If you are wrong, then you could end up owing a lot of money. You could go seriously into debt trying to short a stock that just keeps going up. If this happens, the broker wants to make sure that you have money in your account to cover it.
There are some restrictions to what you can and cannot short in the stock market. Generally you are able to short just about any stock that you don’t like. However, they usually have to be a company of a large enough size. If that were not the case then people would make fortunes just shorting every tiny company. Usually there are few restrictions on your shorting behaviors. Go for it and enjoy.
