Though in trading, the main point may be to speculate on the price change, regardless of what that change is, many traders stick to trading on rising assets. “Long” positions are more conventional and it is understandable, as growing in price assets might be associated with good performance. However, selling may be just as good of an opportunity, though it has to be approached with knowledge and a good trading plan.
What is short selling?
Going “short” or opening a short position means investing with a prediction of the asset price going down and expecting a positive outcome from a trade-in that direction. Short positions can also be referred to as “bearish” and the traders that open short positions are called “bears”.
Short selling is available on different assets: it can be done with CFDs on Stocks, Forex, CFDs on Cryptocurrencies, and FX Options. The main principle is similar. Traditionally, when a trader wants to short sell stocks, for example, the idea is that the trader borrows the stocks to sell them with an expectation that the price will keep falling. Once the stock has decreased in price more, the trader buys the same stocks at a lower price and returns them to the lender, keeping the difference in price.
When to short sell?
The decision as to whether buy or sell should be based on the asset performance and your trading method. A short position, for example, is opened when the asset is predicted to decline, and the trader’s job is to establish the appropriate entry point for the deal and find the right time to exit the deal in order to manage losses.
In order to evaluate the market, a trader may choose between technical and fundamental analysis or apply both. Short positions may also be traded, for instance, with the martingale strategy, especially on Forex assets. When short selling, traders need to control the asset performance and set a stop loss level in order to manage the losses that may occur.
Conclusion
Short selling is another way of trading the assets It allows traders to take advantage of those assets in the downturn and trade while the market is bearish. Though “selling” may give a possibility of a high return, it is also associated with risks. The decision of whether buying or selling is appropriate is the trader’s responsibility and it has to be backed up with extensive analysis as well as a powerful risk management technique.
