Short selling explained

What is short selling? This video explains short selling in the stock market in simple terms.

⏱️TIMESTAMPS⏱️
0:00 Introduction
0:51 Long position in a stock
1:30 Short position in a stock
2:26 Actual share price vs expected share price
3:24 Short selling and company bankruptcy
4:00 Risk of short selling
5:05 Short selling summary

To understand how #shortselling works, let’s start with getting familiar with the terminology of long positions versus short positions. Let’s take a look at the share price of a fictional company called Toy Giraffe Inc. The share price has been going up and down in the $80 to $100 range over the past years. Meet John. He does not currently hold any shares in Toy Giraffe Inc, and expects the share price to go up. John is going to take a long position. Meet Jane. She does not currently hold any shares in Toy Giraffe Inc, and expects the share price to go down. Jane is going to do the opposite of John, and take a short position, or short sell.

“Going long” means that you expect a share price to go up and take a position accordingly. You buy a share, and intend to follow the “buy low, sell high” strategy. Your loss is limited, as you could lose only the original amount you invested. Your gains are unlimited, if the share price continues to rise.

“Going short” or “short selling” means that you expect a share price to go down and take a position accordingly. You sell a share that you borrowed, and intend to follow the “sell high, buy low” strategy. Your gains are limited, because the “best thing” that could happen to you is for the company to go bankrupt and its shares to sink to zero. Your loss is unlimited, as you could lose many times the original amount of your short position.

Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market #investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

[rogerho]

Finally, a channel that explains short selling in the most easiest way to understand.

[terrancepinkney]

Wow! That sucks for them! This is a huge gamble with shorting! Thanks for this amazing explanation!

[konstancyja]

Finally an easy and clear explanation! I would happier to learn it this way in the school as well

[charbam]

Absolutely fantastic, clear, well organized explanation with incredibly helpful detail and examples. Thank you...I get it now! I am excited to see what else you have - Im definitely going to be a new subscriber.

[antrim]

That’s was the easy explanation on YouTube thank you

[InvestingEducation]

Good video. Look forward to more simple explanations on complex finance topics

[konstancyja]

Watched it again, its a great explanation, especially in nowadays market for an amateur stock traders!

[rauljimenez]

Thank you very much!! As always, your explanations are cristal clear!!

[brownpunk]

Ok i get really confused..what is borrowing stocks?
Im new to this

[billybobobson]

Just found your videos as I’ve gained interest in learning about the stock market and investing. I truly love your clear unbiased explanations! I was wondering what you thought about apps like Robinhood. Would it be a good way for me to practice with small amounts of money and not have to pay commissions or fees (as it claims)? Thanks again for your videos!

[joeypage]

Say I short sell 1 stock, so I borrow a share and then the price goes way up, am I able to wait until that stock goes back down to my expected level and then buy back ?
meaning day1: short sell 1 stock at $10, hoping it goes to $8
day 2: stock goes to $20
day 3: stock drops to $8,
at that point can I buy in and "win" my short position?

I guess what Im asking : is there a timee contraint or window in short selling?

[TheRPatel]

Very well explained I am still curious about this 2 situation with Jane

What if she doesn’t buy back if price goes 100 to 1000.?

Is there a contract with broker she must buy at higher price or just loose purchase price of share?

[earyar]

Nobody emphasizes the BORROW fundamental on a short position. That's what makes this a pain to understand.

[ERMAC]

Either the broker or whomever they are borrowing the stock from is losing the money, so essentially your making money off someone else's loss. What if you borrow a stock from a broker and its someone else's stock . Do they know someone else is borrowing their stock, what if they want to cash out all of that stock but the broker borrowed it out to someone?

[Gurpefy]

Just a little confused. How much can you actually lose from short selling or long selling? You said you can only lose up to the amount you put in, you could never go in debt? Just curious, comparing this to the whole GameStop thing that's happening and how people at wall street lost a bunch of money from short selling.

[mahmood]

What’s the time period for settlement? How long broker can wait for shares to be returned?

[Toon]

Hey, I have a question! Why would Jane need to buy the shares back? If she would just have sold them at 100 dollars, then she would get 100 dollars profit, right?