“A tree can make millions of matchsticks but a single matchstick can destroy thousands of trees.”, I came across this quote on social media. And it holds good for stock market too. In most of the cases it takes time for a stock to go up but when falling it falls real quick under a catalyst. As the process is quick and the magnitude is high, most day traders love short selling.
There was a day few months back where one of the Indian index tumbled 2000 points. Assuming you are late to the party and early to exit, an 800 point profit could have been made easily on that day. And the catalyst on that day was U.S. bond yields. Most foreign investors sold their Indian holdings to invest in U.S., this triggered fall in stock price and fearing losing more even the desi investors started selling, this was topped by profit booking and short selling. So there was a free fall. Investors who held on to their holdings lost money and short sellers made tonne of money. A similar thing happened to Adani stocks when there was a news related to freezing of 3 FPI’s account. The stocks fell 20% and if someone used leverage of 5x the end result is jaw dropping, 20% *5 = 100%. Also trading one sided stock is easier than trading oscillating stock.
Short selling comes with cons. Some countries don’t have circuit limit and if someone trades without stop loss, things can get bad. I’ve explained the cons in my post called ‘Day Trading for Beginners’, so do check that out.
Well that’s it for this post. See you next time with a different one. Byeee 🙂
Disclaimer : Trading stocks is subjected to market risks. Please read all the terms and conditions before investing. The motive of this post was to teach little things about stocks for those who do not understand much about stocks. Candidcanblog.com will not hold any responsibility for any losses incurred to the readers of this post.