There is a misconception among traders that short sellers, or short selling is bad for markets. In fact I talk to at least 10 traders everyday and 50% of them say they do not want to short sell by giving two reasons:
First reason – The margin blocked is very high by brokers and,
Second reason – It can make unlimited loss.
Well it is a misconception that short selling of options or futures is bad or unethical.
This is knowledge for those who only buy and never sell:
Who sells you the Equity, Options or Futures? They are the sellers. If no one is a seller a trade can never get completed. There has to be a buyer and a seller for the trade to be completed.
Do not forget that buyers have to become sellers one day when they decide to close their trade.
For example a trader bought an option for 80 and sold at 100 to book profits. When he bought the option he was the buyer, when he sold the option he become the seller.
Every seller has to become a buyer and every buyer has to become a seller to close their trades. When the trade is being closed they both have to change their positions.
Warning for Option sellers: On paper Option selling involves unlimited loss but limited profits. Therefore to safeguard and limit your losses, in case it happens, it is highly recommended that you hedge your sold options. But there is very conservative way to hedge the sold options and futures, which is well explained in my course.
There is also a general misconception among traders that short sellers try to bring the price down of an equity. Some even think, to bring stock price down of their competitors, some rich traders short their shares. This is not true. Whenever markets goes down it is blamed on short sellers, but the fact is if buyers are less than sellers, market or the stock goes down.
Shorting is just the opposite of buying. Those who think the stock may fall short it and those who think the stock may rise buy it. Yes sometimes the above does happen but it cannot cause a major outcome in stock markets. It can be ignored if you do not trade penny stocks. This the reason I highly recommended against trading penny stocks. Please do not get greedy and buy or sell unknown stocks even if your broker suggest you to do. Never trade penny stocks you can lose a lot of money.
Even in other businesses in the world short selling is done. For example a cloth wholesaler may sell the clothes to a merchant two months before the contract, take the money and deliver the products two months later. This is short selling.
Markets do need the short selling traders. Here are reasons why short selling is important for the stock markets:
- If there are no short sellers, there cannot be any trade. Short sellers add liquidity in the markets. Without liquidity markets are non-existent.
- Some stocks are unnecessary overpriced without any reason. These stocks may bring greedy investors to invest. It is short sellers who help in bringing the cost of these stocks down. Indirectly they help to save losses of greedy penny stock traders.
- Remember the Satyam’s story? Their financial books were fraud. Once it was exposed the short sellers jumped in and bought the stock down from 200 levels to 10. The company is non-existent now.
- Since short selling involves more risk, short sellers have to research very well the company before short selling it. In other words short sellers are very intelligent traders since they are taking more risk than buyers.
- Brokers usually recommend buying a stock but rarely give a short sell signal because they know very well, as soon as a buy signal is generated, their clients would buy the stock, but if they give a sell signal their clients may ignore.
- In a bullish market it is the short sellers who bring stability to the markets, especially when the markets become overpriced or overbought.
There is nothing wrong in short selling, but please hedge your positions before short selling. Options are a great tool to hedge your trades. Whether you trade stocks, options or futures, everything can and should be hedged with options.
Options were invented as a hedging tool and they should be used for that, even if you decide to trade options you can hedge them with options.Please like & share my blog with your friends:
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Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.
My conservative trading course since 2014 is helping many retail traders just like you who have a job or business make consistent profits like this:
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What Others Charge for Courses
You can do this course from your home. Some traders make amazing profits like Rs. 16.26 lakhs profit in 5 days though results may differ for all.
This course helps you learn to trade conservative option strategies for monthly income. Once you finish the course you can start trading immediately. You can start trading from any day. No need to wait for expiry. You will make profits consistently.
This course is good if you have a regular job or business. You DO NOT NEED to monitor your trades every second.
What You Get?
Before reading please understand that for all 5 strategies, strike selection will be taught. Strike selection while trading Options is the most essential part to succeed.
You get two conservative non-directional strategies on options, one conservative stock option strategy and two conservative directional strategies on Future & Option combination.
Non directional trades are profitable 80% of the times and make 3-5% per trade (Results may vary).
Directional strategy makes money fast. It does not matter which side the stock moves. In fact you make more when you are wrong in the Future trade. 🙂 Some amazing profits possible here.
The stock option trade makes 30,000 in one trade and if SL is hit there is a way to recover losses plus make 30k in that trade.
Technical knowledge is NOT required. No need to monitor trades every second.
In the course you will learn how to select the strike prices. You learn when to trade, which strikes to sell which to buy, how much profit target you should be looking for, the best place to take stop loss and what to do after taking stop loss – means how to get that money back. The success rate is more than 80%.
Since trades are properly hedged there is no stress in trading my strategies.
I am very confident that you will make money trading my strategies. To help you succeed I offer few months support for FREE.
11 Reasons Why You Should Do The Course:
1. TA Knowledge NOT required
2. NO Software Required
3. Regular Monitoring NOT Required
4. Continue with Your Job
5. Do Course From Your Home
6. 100% Hedged
7. Stress-Free Trading
8. Not too much money needed to trade
9. Scaling Possible
10. One Time Fee
11. FREE Support For Months
To know more Call/SMS/WhatsApp me on 9051143004 or email me now. I know English and Hindi.
Read the details of the course here.
If you want to enroll for the course you can do so here.
P.S: So many years of trading has thought me one thing - it is always better to make small profits month after month, rather than lose money month after month trying to make too much money. It never happens. But small money accumulated month after month can become very big in only a few years.
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