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How to Make Money in a Tough Stock Market
Making money in the stock market can be tough during the best of times but when the economy takes a downturn and spirals into recession, making money in the stock market can seem to be nearly impossible. In this article today I’m going to give you some tips and tricks on how to profit even during tough times in the stock market. With these tips you’ll be pretty far ahead of the game compared to everybody else.
The most popular strategy for making money in a tough economy is to engage in short selling. Short selling scares a lot of investors, especially a lot of smaller individual investors because either they don’t quite understand the strategy or they get nervous about the potential open-ended losses that are possible based on the nature of short selling itself.
The fact of the matter is, short selling can be much easier than you may think. Yes, it is quite risky but there are ways you can mitigate that risk fairly easily if you know a few simple tricks.
Before I get any further along I should define what short selling is in case you haven’t ever heard of it before. Short selling is the act of borrowing shares, usually from your stockbroker. You then sell those shares at the current market price and pocket the money. Let’s pretend that you sold one share short for $100.
Now you simply wait. When you sell short you have made a bet that the market is about to turn down or at least that the particular share that you sold short is about to drop in price. Now let’s pretend three weeks have gone by and the stock that you sold short has tanked in the market and is currently now selling for $30 per share.
What you do now is simply take your hundred dollars that you earned by selling your original borrowed share and use $30 of it to buy a new share of stock at the current market price (of $30). You now take that share and give it back to your stockbroker because remember, you have borrowed a share from them and you now have to pay them back.
That’s it! You’ve made $70 by borrowing a share when it was trading at $100, selling it, pocketing the hundred dollars, waiting for the share to sink in price, buying back in at the lower price, paying back your stockbroker the share that you borrowed, and pocketing the difference. That’s all short selling is!
There is a substantial risk involved in short selling What happens if the stock doesn’t drop in price? What happens if it in fact increases? Let’s say that the stock went from $100-$150. You still owe your stockbroker one share of stock and when he wants it back you’ve got to give it to him which means you have to go out onto the broad stock market and buy a share for whatever it’s currently selling at, in this case $150 which means you will have lost $50.
People consider short selling very risky because there is no ceiling to how high the shares can skyrocket and as long as the shares keep climbing in price, you keep losing money until you eventually buyback in to cover your position.
So there you have one very quick and easy way to make money in a down stock market.
Jason Markum has been writing articles online for almost 14 whole years. When not writing about investing, he enjoys running a leaded glass window web site where he reviews the best leaded stained glass for your home doors and windows.
Tags: Market, Money, Stock, Tough
View this post on my blog: http://stocktips.valuegov.com/how-to-make-money-in-a-tough-stock-market/
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