Trade12 - Get Your Trustworthy Broker with Trade12

Trade12 Review Blog – Get Your Trustworthy Broker With Trade12!

Trustworthy Broker

Are you new to trading? If you are, then you have a lot to get in order.

Trading is a field where people spend more time preparing than executing. After all, most of the execution is about placing an order. This doesn’t take more than a minute, depending on the medium you’re using.

There are things you have to get in order before every trading session. But, there are also preparations you need to make before starting your trading journey. One of those is to find a trustworthy broker.

Unfortunately, traders tend to face a lot of obstacles in their broker search.

Trade12 - Losing Trades

Brokers: A History of Scamming.

If you’ve ever decided to study the darker aspects of the field, you’ll find that there have been a lot of broker scams throughout the history of trading.

Broker scams include anything from fake trading firms to churning. Additionally, markets where use of high leverage is common tend to involve the largest scam attempts.

As you may have guessed, we are talking about the forex market.

In forex markets, price motions are minimal, and thus you need a lot of leverage to make money. While leverage can multiply your gains fast, it is unfortunately a double-edged sword. You can lose money just as fast in forex.

This is something that scamming brokers tend to capitalize on.

A lot of scamming brokers will recommend orders in horrible markets disadvantageous to the trader. This is while “pretending” to place an order for them in the market of choice.

As you may have guessed again, the pretend orders are fake.

Thus, when the trader loses money on the trade, their account sinks due to the high leverage. The lost money is taken by the broker, since there were no orders to begin with in the first place.

By Now, You Might be seeking the Location of Trustworthy Broker.

Who doesn’t?

Trade12 Review Logo

No worries though. Trade12 can provide you a list of trustworthy brokers for a safe trading experience.

Trade12 is a company that has been offering trading services to traders for close to 12 years. It is actually the oldest online forex and metals trading platform, and the most famous.

Trade12 regularly scouts brokerage news to find and list scammers as warning signs to traders. With Trade12, you are assured to receive a broker who works for you best interests.

The trustworthiness of Trade12 as a platform can be seen through many online reviews. Trade12 reviews not only praise the platform’s safety, but they also praise the educational value provided through it.

Even Brokers Benefit too Through Trade12.

Trade12 allows brokers to recommend clients onto the website through an affiliate program. You earn a commission for every successful client recruited.

Also, brokers can recommend other brokers onto the platform. As a bonus, you will receive a commission every time the recruited broker recommends a trading client!

That’s a lot of money to gain just through commissions!

So why not start with the platform now? Broker or client, you definitely won’t be disappointed!

 

Trade12 - Trade12 is the Platform that Will Give You a Free Lifestyle

Trade12 Review Blog – Trade12 is the Platform that Will Give You a Free Lifestyle

Trading is an unorthodox field for a business startup.

You’re doing all of the work from an office, possibly your bedroom. There are no sales calls to make. Instead, there’s only a broker who handles all of your order for you.

You don’t own or store stock in a warehouse to merchant. Everything you buy is documents, whether it be stocks of shares in a market. The transactions are executed in minutes, possibly seconds.

Not only that, but you have the opportunity to work alone, without annoyances or interruptions from someone else.

This is the trader lifestyle. It’s a lifestyle where you run your own business with no physical effort exerted beyond occasional visits to a broker.

Trade12 - Platform

The Trader Lifestyle in the 21st Century

A few decades back, you didn’t have the technologies we have today. There was no internet, no home computers, and no trading software.

You didn’t get free or easily accessible materials to help you learn the art of mastering the markets. You had to buy everything from a bookstore, or attend expensive seminars.

Today, you can do everything from a laptop. You can learn from a laptop, place orders from a laptop, and manage your money from a laptop.

Thus, you have the ability to work wirelessly. Additionally, since you’re working from a computer, you have mobility. You can actually travel anywhere you want, whenever you want.

Unlike traditional brick and mortar businesses, you’re not tied to a specific location. You’re not stuck for hours a day (everyday) attempting to manage a small store or service location.

You can move around. You can live wherever you want to even. There are no restrictions, as long as you have a good internet connection.

Setting Your Own Work Hours

Beyond mobility, you can work whenever you want. Do take into consideration that trading mostly involves doing homework. You’re logging into your computer to both study indicators and make decisions, and to look for information.

The actual process of placing traders is effortless. In a few clicks, you can buy whatever you want, or sell whatever you hold. You can do it by phone too if you’re a little old fashioned. There’s absolutely nothing wrong with that.

It all seems well doesn’t it? Who wouldn’t want to live that kind of lifestyle!

Unfortunately, the preparation to get to that point is intensive. There’s a lot to master from risk management strategies, to a long learning curve, and mastering psychology.

No worries though. We know who can help you out with the process.

trade12 Website

Trade12 Will Guide You Through Your New Career.

Trade12 is a platform that has been around for almost 12 years. It’s a trading platform where you can trade currencies, metals, and more!

Over the years, Trade12 has provides many services to traders, launching them on a path of success. You can check Trade12 reviews as a testimonial to that.

You can be one of those successes too! You can be an individual whose positive experiences convert into a Trade12 review someday!

So why not start your path of freedom now?

Trade12 - Breaking the Myths about Value Investing

Trade12 Review Blog – Breaking the Myths about Value Investing

What is value investing?

Value investing is defined as a stock-picking strategy that aims to invest in stocks that are considered as undervalued compared to their true value. It generally involves some aspects of fundamental analysis. Benjamin Graham is widely known as the “father of value investing” after he had succeeded in investing by applying the principles he founded. His most famous student, Warren Buffet, is currently the second wealthiest person in the world, also admittedly applied the concepts of value investing.

Investors who use this strategy believe that the market tend to overreact to good and bad news, resulting to stock price movements that are not relative to the company’s long-term fundamentals. Thus, value investing paves way for investors to enter the market when the price is deflated and be able to ride the rising trend when the market is due for correction.

Trade12 - Investing in Good Undervalued Stocks

Investing in “good” undervalued stocks

Value investing is different from simply investing in undervalued stocks. It does not mean to just buy any stock that declines and therefore seems cheaply priced. There is a huge difference between a value company and a company that has a declining price. Learning how to identify the intrinsic value of a company is a must in order to see its true potential.

Value investors look for stocks with strong fundamentals. These include earnings, dividends, book value, and cash flows. Value investors seek value stocks that are selling at a bargain price despite having a good quality.

A value investor’s mentality also lets him see stocks as a vehicle to owning a company. A value investor makes a profit by investing in a quality company, not by trading it. Because of this, value investing is only applicable for a long-term holding period. It does not aim to recognize instant gains. Value investors don’t mind the external factors affecting a company, such as market volatility and short-term price fluctuations. They firmly believe that a quality company will be able to bounce back after some downturns.

Trade12 - Investing on Bargained Prices

Investing on bargained prices

We may understand value investing better by thinking of it as a sale. A lot of consumers buy smartphones nowadays. A wise consumer, however, knows that there are certain times that a smartphone is put on a sale. Thus, the wise consumer waits for a sale to happen before he or she buys the smartphone, unlike the others who willingly bought the smartphone at its original price. Regardless of the price paid, both consumers availed the same product, but only one was able to maximize their gains.

Margin of safety

Of course, like any other stock-picking strategy, value investing does not guarantee to make profits. Because of this, value investors always have a margin of safety. Following the steps of Benjamin Graham, value investors only buy stocks when they are priced at two-thirds or less of their intrinsic values. Thus, letting the investors earn the best returns while minimizing investment downsides as well.

Trade12 - Margin of Safety

Bottom line

Value investing is a long-term strategy. It does not give investors instant gratification of their decisions. Undervalued stocks may crawl slowly upwards, but patience will eventually pay off. Discipline is also a must in value investing. There may be times that the market looks as if it’s going against you, but holding for a long time normally helps investors ride out the short-term price downturns. An investor needs to be disciplined in sticking to their investment policy in order to reap good harvests out of it.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 - A Quick Overview of Mutual Funds

Trade12 Review Blog – A Quick Overview of Mutual Funds

Investing is a good alternative to simply keeping money in the bank with little to no significant returns. There is a common misconception that investing is only for those who have the knowledge and time to always monitor the market. But how about the people who doesn’t have either? In this article, we are going to talk about mutual funds.

Trade12 - What are Mutual Funds

What are mutual funds?

A mutual fund is an investment fund that is made up of pools of money from a number of investors. Mutual funds are used to purchase a portfolio of different securities. They are managed by a fund manager who invests the fund’s capital and attempt to produce gains in behalf of the investors. The securities bought through mutual funds are called holdings, which, when combined form a portfolio.

Mutual funds are like baskets. All securities bought are put inside the basket. If the mutual funds are used to buy some shares of Company ABC, the investors do not directly own the shares, rather, they own a representation of the securities held in the basket.

Unlike in stocks, shares bought from mutual funds do not give its holders any voting rights. Income from dividend stocks and interests are often sent to the fund owners in the form of a distribution. Fund owners are given the choice either to receive these through checks or to reinvest their earnings to get more shares.

Trade12 - Benefits of Mutual Funds

Benefits of mutual funds

  • Professional management – There are a lot of people who are interested in investing, but they do not have the time and knowledge to build their own portfolio. Mutual funds are managed by professionals who do the analysis and decisions in order to maximize profits from the invested capital.
  • Portfolio diversificationThis is considered as one of the best ways to avoid the high risks in investing. However, diversification is hard to achieve, especially if the investor doesn’t have a huge amount of money to start with. Mutual funds make diversification easier to achieve since the money from investors are combined to accumulate bigger funds that can purchase investments across a number of diverse assets.
  • Affordability – Most mutual funds require a relatively low initial deposit. Sometimes even with as low as $100, investors already have the chance to invest in a number of securities that are held by mutual funds.
  • Convenience – Mutual funds allow investors to cash out their shares at any time at their current net asset value or NAV plus any redemption fees. Although unlike normal stocks, mutual fund redemptions take place only at the end of each trading day.
  • Transparency – Even though mutual funds are managed by a different person, investors have the rights to review all transactions made through their accounts to ensure fairness and accountability.

Read more about the importance of financial investing.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 - Are Successful Traders Made or Born to Become One

Trade12 Review Blog – Are Successful Traders Made or Born to Become One?

There had been a number of heated debates to determine if successful traders are made or born to become one. Let’s take a professional pianist for example. A child is not born with the talent for playing piano; instead, the child trains, studies, and practices in order to play beautifully. Although this metaphor is not the same as a successful trader, it gives us a hint of how successful individuals come into existence.

Trade12 - The Turtles Experiment

The Turtles experiment

In the past, there were 2 men namely William Eckhardt and Richard Dennis, who were involved in a debate on whether successful traders are born or made. Eckhardt believed that becoming a successful trader comes from within and it cannot be taught, while the latter argued that anybody can become a successful trader with enough education and practice.

In order to prove their theories, they made an experiment involving 21 men and 2 women without prior trading experience. Dennis spent 2 weeks to train the recruits which he named “Turtles”. For 2 weeks, he taught them about a simple trend following system, trading different commodities, currencies, and bond markets, buying when prices increased above their previous range, and selling below their previous range. They were taught different techniques in cutting loses and maximizing profits.

After their training, they were given a month of trial trading period. After the trial ended, Dennis gave each of the recruits who showed a successful performance a trading account ranging from $250, 000 to $2 million from his own money.

Five years later, the Turtles reportedly earned a total profit of $175 million. Take note that these people are all beginners in the market before they started with the trading. This experiment is just a living proof that a successful trader is made and is not inborn.

Trade12 - What Does it Take to Become a Successful Trader

What does it take to become a successful trader?

Although one cannot succeed in trading without access to the proper resources, through the experiment, we can conclude a few pointers. Trading requires knowledge, perseverance, patience, and discipline.

There are a lot of people who simply want to throw themselves into a den full of lions by trading without proper training. Preparation makes the difference between trading and gambling. That is why demo accounts are important in shaping a beginner’s mind and strategies. Research is another key to gain the required knowledge.

Perseverance is also required as it is unavoidable for beginners to experience a few losses at the start. One needs to learn how to stand back up again after falling a few times.

The market doesn’t shoot straight up or stumble at an instant in a single day. Some trends tend to have a long span and minimal movements so patience is needed in order to make significant profits.

Discipline is one of the cores. You need discipline to stick through your trading rules and strategies. It keeps you from swaying far from what you planned in the beginning and become a systematic trader.

Read about the importance of following a trading plan.

Conclusion

Everyone should stop believing in the notion that becoming a successful trader is innate. Instead, they should focus on shaping themselves and training to become one. Whatever a person sets in his mind, he should keep with it and persevere until he reaches his goal. It is nurture, not nature that is essential in the making of a successful trader.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 - Backtesting Your Trading Strategies

Trade12 Review Blog – Backtesting Your Trading Strategies

It is a common practice to apply some strategies in trading in order to increase the chances of becoming successful. There are various strategies to choose from, yet there is no proven one that is applicable for all kinds of trades. How can we even be sure that these strategies are profitable for us? What are the ways to proving gainful strategies? In this article, we would talk about a technique in testing trading strategies called backtesting.

Trade12- What is Backtesting

What is backtesting?

Backtesting is the process of testing a trading strategy based on past data to ensure that it is profitable. Backtesting software can be reconstructed with different situations to test the strategies’ effect in various conditions.

It gives out statistical results that can be used to determine the effectiveness of the strategy. If the results meet the set criteria, then the strategy is deemed viable. But if it ends up lacking in some parts, then it can be modified and adjusted to achieve the desired results.

The idea of this test is if a strategy has worked in the past, then it has a great possibility to also work in the future. The key is to test it out on all possible conditions that are likely to happen again later on.

Nowadays, a huge number of traders are opting to use computer automated strategies. To ensure the viability of these strategies, backtesting became an integral part of developing an automated trading system.

Trade12 - Significant Backtesting Data

Significant backtesting data

There is a lot of backtesting software available on the internet that can be used to analyze strategies. Most of which can be modified to meet some conditions. A backtest should involve enough data to get acceptable results. For example, the duration of the sample time should be long enough to include periods of varying market trends. The sample size to be tested is also crucial because including only a small portion may not be statistically significant. Thus, backtesting should be optimized well in order to avoid making false conclusions.

Analysts should also take into consideration the gains and losses made throughout the whole time frame, the exposure or the percentage of the capital invested, wins-to-losses ratio, and the percentage of return over the course of the strategy.

Why is it important?

It is easy to pick a strategy or apply someone else’s strategy on our own trades, but we can’t expect them to work just the same as theirs. All traders have different preferences, trading lifestyles, and decisions. Backtesting, if implemented and applied properly, can help traders improve their strategies to become more profitable. That’s why it is important to apply a strategy that is drafted only for you.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 – Understanding the Basics of Options Calls and Puts

Trade12 Review Blog – Understanding the Basics of Options: Calls and Puts

There is no assurance of profits in trading. There may be a lot of precautionary measures and strategies to make, but there is still no guarantee to totally eliminate the risk of losing. Recently, we have talked about some hedging techniques to lower investment risks. We have tackled hedging through derivatives, which involves the use of put options. But what are put options? In this article, we would expand our knowledge about put and call options.

Options

An option is a form of a derivative. A derivative is a security which price is dependent upon another asset. An option is a contract, or a provision of a contract, that gives the holder the right, but not the obligation, to make a specific transaction with the issuer according to a certain condition agreed upon the contract. However, this contract comes with a certain fee that is multiplied with the number of assets it would cover. This price is called a premium.

Trade12 - Options

Put options

A put option entitles the holder the right, but not the obligation, to sell an asset at a specified price which is also known as the strike price. On the other hand, the seller of the put option is obligated to buy the stock at the agreed price. A put option can be used any time before its expiration date.

An investor buys a put option because he speculates that his stocks will fall at a later date. In order to secure his profits, he buys a contract that locks in the price of his assets so when the time comes that his stocks drop in price, he can still sell them at the specified price.

The seller of the put option is obligated to buy the assets at the specified price if the contract is used before its expiration date. However, if the contract hits its maturity date and the buyer do not use it, the seller gets to keep the premium paid for the options.

Call options

A call option grants the holder the right, but not the obligation to purchase an asset at a specified price for a certain period of time. If the stock price does not meet the strike price within the duration of its validity, then the contract becomes worthless.

An investor buys a call option if he predicts that a stock will increase in value. Once the strike price is hit, he has the option to purchase the stocks at any time within the duration of the contract at the specified price.

As with the seller of put options, the seller of the call options is obligated to sell the assets to the buyer at the strike price once the contract is used. But if the contract expires before the buyer uses it, the seller gets to keep the premium paid for it.

Understanding the gains and risks

The relationship between the seller and the buyer of options is like a zero-sum game. Only one will gain while the other loses. The only difference is the limit of the gains and risks they are exposed to. The buyer of the options can only lose the maximum amount of the premium he paid for the contract, while the seller can lose the whole amount of the strike price multiplied to the number of assets involved in the contract.

Conversely, the buyer of the options can secure his profits, even when the market is falling, or maximize his possible gains when the market increases since he can buy at a lower cost. On the other hand, the maximum gain that the seller can get is only the premium paid for the contract.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 - Hedging Techniques to Lower Your Investment Risks

Trade12 Review Blog – Hedging Techniques to Lower Your Investment Risks

There is no such thing as “free lunch” in investing. There is always an equivalent risk in every investment. There is no way to totally eliminate this risk; however, we can integrate some techniques and strategies to at least lower them in order to raise our chances of securing a profitable investment.

What is a hedge?

A hedge is an investment position intended to reduce the risk of potential losses of an investment. Hedging is often thought as an advanced investing strategy, but practicing it is a very effective way of lowering the impact of losses in a portfolio.

We can think of hedging as similar to an insurance policy. When people buy a car, they usually open an insurance plan along with it. This doesn’t prevent any bad event to happen to the car, but it reduces the possible impacts if it occurs. This safe plan doesn’t come without a cost. The car owner pays monthly for the insurance plan, even if the presumed bad event does not come. Despite that, people still choose to have a backup plan than going through a big loss when something bad happens and they’re unprepared.

Read more about the importance of financial investing.

Trade12 - How Do You Hedge

How do you hedge?

Let us consider this scenario: You bought 100 shares of an automobile company which we will call company ABC. An automobile company performs well as long as the economy is flourishing. But we cannot be assured that it would perform just as well if the economy goes through a recession.

Hedging through diversification

In order to hedge from this potential risk, you can opt to buy defensive stocks. These stocks are composed of any products that are considered as basic necessities. During economic recessions, these stocks tend to gain or at least maintain their value. Thus, if you buy another 100 shares of company XYZ, which sells canned goods, then these stocks might gain in value even when your stocks with company ABC lose.

Hedging through derivatives

Another way to hedge is by purchasing put options for your shares. For example, your stocks with company ABC are currently worth $20. You are afraid that there is an incoming recession and you want to secure your profits, so you bought a put option to sell your stocks at $20 each no matter what happens in the future. This put option is a contract that gives you the right, but not the obligation, to sell a security at a specified amount within a fixed period of time. Thus, if your stocks suddenly dropped to $15 each, you can still secure your profits from the put option you purchased by giving you the right to sell your stocks at $20 each.

Trade12 - Importance of Hedging

Importance of hedging

Hedging is a very important technique to protect your investments from unforeseen negative events. It is all about decreasing the impact of losses in order to help protect your portfolio from uncertainty. Although it comes with an additional cost, it is still worth the benefits it can give if it could secure you from a rather greater cost.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 - Comparison of Active and Passive Investment Approach

Trade12 Review Blog – Comparison of Active and Passive Investment Approach

There had been a significant increase in investors from the past years. Each of these investors has their own different techniques on how to conquer the market. However, there are 2 major investment approaches: active trading and passive investing. In this article, we would discuss about the difference of these 2 approaches and which one of them is more appropriate for you.

Trade12 - Active Trading

Active trading

Investors of this kind are the ones who prefer to make money fast by taking advantage of short term price fluctuations. They usually read everything about investing, study the stocks and their trends, and subscribe to newsletters and magazines in order to be updated on the latest market news. They also regularly read financial statements, economic analysis and reports.  They treat investing as a passion, hobby, or even a career.

Active traders usually prefer stocks that are rising and promises accelerated earnings, presumably from newly discovered products and innovations. They don’t hold on to stocks for a long time, rather they seek to buy and sell stocks with the intention to make money from short term price movements. They can be associated with “day trading” as they usually make multiple trades during a single day.

The good thing about active traders is their ability to hedge on losing trades by short selling and other strategies. They also practice risk management as they can easily get out of investments when the risks start to get out of hand.

Although active traders have the potential to make money quick, they are also subject to losing just as well. The hardest part of being an active trader is the emotional challenge it brings, since it involves gaining and losing money often, resulting to undisciplined transactions without following a strict trading plan.

Trade12 - Passive Investing

Passive investing

This type of investing aims to maximize returns on the long run by using a “buy and hold” approach. Passive investors usually create a plan, researches for growth stocks, invest their money, and then patiently wait for some years until their stocks make a significant return in the future. The idea of passive investing is not to make quick gains, but rather to build slow, steady wealth over time.

Passive investors believe that by simply waiting, they can overcome the ups and downs of the market until they can settle on higher returns. They rely on the fact that despite of some crashes in the market; it has always gone back up over time.

When done correctly, passive investing can bring a lot of profits, possibly even multiplying their initial capital, rather than a series of small gains. It also eliminates the emotional problems that comes with having to check on the market everyday as temporary downturns in the market has little to no effect on passive investors.

However, the challenge in passive investing lies on recognizing growth stocks – stocks that will make consistent increase of value in the future. Even though passive investors don’t monitor the market often, they still need to periodically re-evaluate the performance of their stocks and have the presence of mind to respond to long-term market changes.

Trade12 - Which One is For You

Which one is for you?

Choosing which investment approach to take depends on your personality and preferences. Those who are eager for quick profits and would like to generate fast income, no matter how small the gains, are more inclined to become active traders. While those who prefer to save up for retirement or generally want to purchase more expensive luxuries in the future should opt for passive investing.

Learn more about the importance of financial investing.

Conclusion

No matter which investment approach you choose, make sure to stick to your plans and follow initial strategies. For active traders: do not get your emotions get in the way; while for passive investors: ignore the temporary downturns in the market. Keep yourself disciplined and you’ll be able to harvest your profits in no time.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker with years of experience in the field. Register an account now and enjoy a wonderful trading experience!

Trade12 - Short Selling Against the Market

Trade12 Review Blog – Short Selling Against the Market

The ultimate goal in the buying and selling of stocks is to make money from them when the trend rises. But what would happen if the trend reverses to a decline? How could investors make money from this phenomenon? In this article, we would talk about short selling and how it works.

Trade12 - What is Short Selling

What is short selling?

Short selling is a trading strategy wherein traders seek to make money from the belief that a stock will decline. It is the sale of a security that is not currently owned by the seller, or more simply put, borrowed from a broker. It aims to immediately sell the stocks at their current price, then bought back or covered at a lower price to make profit.

Short selling is led either by the speculation that the market will decline or by the desire to hedge the downside risk of a long position. There is a misconception that short selling is done with the intention to put companies into bankruptcy. The truth, however, is the other way around. Short selling actually facilitates smooth functioning of the markets by providing liquidity, it also acts as a restraining influence to avoid overvalued stocks and assist in stock value correction.

Trade12 - How Do You Short Sell

How do you short sell?

Long term investments usually follow the conventional principle of buying low and selling high. It is also the same as with short selling, with just a minor difference. It initializes selling high first, and then waits to buy at a lower price. The short seller then generates profit from the difference on the price when the stocks are sold and when they are bought back.

Let us consider the following example:

A trader speculates that stock ABC would decline in value. It is currently priced at $20. The trader decides to borrow 1000 stocks from his broker, who in turn looks for stock sources – either from his own inventory, a client’s portfolio, or from other brokers. The stocks he borrowed are then immediately sold at their current price and the proceeds will be transferred to the trader’s account amounting to $20,000.

After a week, stock ABC falls to $15. The trader decides to close the short position and buys 1,000 shares of ABC at $15 each on the open market in order to replace the stocks he had borrowed. To sum it up, the trader has made a profit of $5,000 from that transaction, excluding the commissions and interest that he owes the broker.

Now, what if the trader’s speculation did not happen and the stock price increased instead? Let’s take for example that after a week, stock ABC shot up to $30 each. It so happens that the original owner of the stocks has demanded his shares back. The broker has no choice but to close the position of the trader. The trader’s loss has now amounted to $10,000 (($30*1000) -$20,000), excluding the commissions and interest that he still owes the broker.

Trade12 - Risks of Short Selling

Risks of short selling

Taking from the example above, we may understand the huge risks of short selling. In a normal investment, the biggest loss that an investor can have is only equivalent to the amount he used to buy his stocks while his biggest gains are theoretically infinite since nobody can tell up to what value the market can rise up to. It is the opposite in short selling, because the biggest gains of a short seller can only be equal to the amount of the stock when sold, while his biggest loss is theoretically infinite – the short seller’s loss is parallel to the market value of the stock as it increases.

Conclusion

Short selling is considered as a very dangerous strategy because of the market’s volatility. No one can really speculate if the trend is going up or down. However, skilled traders and investors find this strategy profitable and practical when done right. Always remember that the best way to beat the market is by establishing enough knowledge and learning the fundamentals so as to avoid being run over by the market’s unpredictable trend.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker with years of experience in the field. Register an account now and enjoy a wonderful trading experience!