How to make profit from falling stock: short selling

 

In conventional trading you follow the rule buy low sell high while in short selling you sell high buy low. In this article we will take a look how short selling works then I will share 3 stories related to this topic. First in short selling we don't have any shares so we just borrow shares from broker or we can just simply tell broker that we will settle our all dues after the trading; so he or she will provide you shares of XYZ company whose stock is at 100$ price  at that time you sell shares then as time goes stock price gets low 90$ then you buy shares of that company and give it to the broker now let's do some math; if you sell 10 shares of worth 100$ that means you have earned 1000$ now when you repurchase share to settle it's price is 90$ so you have to spend only 900$ so after the trade you have 100$; Bingo!.

The average trader is naturally a chronic bull. It is human nature to prefer optimism to pessimism.

                                                                     -Philip Carret 

Now I will share three stories of short selling. First story is of 2009 subprime mortgage crisis to understand it very well you need to watch movie "BIG SHORT" . There is fund manager named Dr. barry he predicted that U.S housing market will collapse and he short sell CDOs and when The whole market collapsed he made billions of dollars in profits. He has an well idea about what will happen in future because he has researched it and it turns out that maximum number of sub prime loans are going to default. So to predict any incident in advance you can not rely on anyone's advice you have to research about it and that's the goal of it.

Now let's move on to next story. person's name is Radhakrishnan Damani he was earlier trader in BSE, India but currently he is the well known investor and founder of D-mart super mall chain. In 1992 stock market scam he has predicted well before that this bull run is because of unauthorized funding. So he short sell many stock but after selling those shares prices had increased; Mr Damani has said once that if some how that bull run last longs 2-4 days more then he will be bankrupt. But fortunately that scam comes out and market has crashed vertically.

Now Let's come to Manu Manek story he was also  early trader in BSE; he used to manipulate stock market at that time founder of reliance  industry late Shree Dhirubhai Ambani has raised the money for his new venture and he has raised money from common people so he did not want that due to any reason his investors have to suffer. This side Manu Manek and his whole cartel seeking the next scape goat and they found reliance share so they kept short selling all the shares but after few small down trends; reliance's stock has regained it's original position. After sometimes It has been found that Dhirubhai Ambani was behind this buying of all stocks; So Manu gang reached at point where they could be bankrupt; He beg pardon infront of Dhirubhai Ambani and promised that he will never manipulate stock.

Think big, think fast, think ahead. Ideas are no one's monopoly

                                                                -Late Shree Dhirubhai Ambani