I want to know which kind of investments you are best to short sell or long sell and which is the safest to do this out of;
Forex
Stocks
Commodities
Which is safest? What would you choose?
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Lol…
You’re first going to need to understand what short means and what long means.
==== What is Short Sellling ====
Short selling technically occurs with these steps:
1. You borrow X shares from your broker. Your broker credits your account to make sure you have enough capital.
2. You immediately sell them at Y price to the market
3. You wait to another day, and you buy back X shares from the market, at Z price
4. You return X shares to your broker
Short selling is technically the process of steps 1 and 2. “Covering a Short” is technically the process involved in steps 3 and 4.
Many brokers will allow the borrowing of shares for the purpose of short-sales; most will do steps 1 &2 together for your as a “short sell” order and steps 3&4 together for you as a “cover order”, similar to a buy and sell order.
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So why do people do this?
Refer back to the steps.
Pretend you had $10,000, so your broker allowed you to borrow 1000 shares of stock XYZ, which was trading at 10$. so you sold 1000 shares of XYZ at $10 each for $10,000 at the market
Now imagine, if the price fell 8$ in a month. You buy back 1,000 shares of XYZ, at 8$ a share, or for $8,000.
You then return the 1,000 shares.
Since you gained 10,000 at the sale, and only spent 8,000 buying back the shares, your profit is the difference, or 2,000. This $2,000 is a 20% gain on the 10,000 you originally credited your account on; the money gained on the buyback is added to your account, which would now be worth $12,000
Basically, short selling profits from price declines. Traders will enter “short positions” when they expect a price drop.
Now imagine, if the price had however risen to $12
You have to buy back the shares, this time at $12 a share, or $12,000 for all 1,000 shares.
You return the shares to your broker, however, you end up with less money in your pocket book this time. Since you had sold the shares for 10,000, but you had to spend 12,000 to buy them back, you lost $2,000 in the overall trade. This $2,000 is a 20% loss on the 10,000 you originally credited your account on; the money to pay for the buy-back leaves you with $8,000.
Short selling loses money when prices rise.
——-
Since you are borrowing shares in short selling, you will need to open a margin account with your broker. Also, with short sales, you can lose more money than your invested capital.
Referring back to our example, pretend that the stock XYZ had risen to $21
You would have to buyback 1,000 shares at $21, or 21,000 total.
The 10,000 from the original sale cancels out, and you are left with a $11,000 loss. This loss is factored to your account, and is deducted from the 10,000 you originally invested. However, this still leaves you on the hook for 1,000. This is how short selling can make you lose more than 100% of your invested capital.
This is one reason why beginners should never try short sales, until they get more experienced.
———
=======
Basically, A short sale is this process, and “short” means that you are currently in a short-sale position. Long came from being the opposite of this, and means that you are currently in a buy-hold position
==========================
“long” means that you are buying, or holding a buy position. The name is more derived from the opposite, “short”.
The opposite is “short”, in which you are short selling stocks, or in a short sale position. The nomenclature is from short in that you are short stocks in your portfolio (the same short as “I’m short 5$, can you foot the bill?”), in that you owe shares.
——
So basically, short selling would be that whole page full of explanation.
“long selling” would be selling a long position, or exiting an existing buy-hold position by selling,
Both actions are instances of selling, an action that usually is associated with a “bearish” market sentiment. The only other difference is that “long selling” as an exit can be with a neutral outlook either seeking to liquidate and loosen capital reserves, or to exit and not risk taking any market positions
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Anyways, I have a pretty “bearish” (i hate using that term) outlook on stocks, or at least the dow jones, for a time frame about the next 2-3 weeks; i would feel that is the most profitable to short sell.
You can’t “short sell forex”, because forex is an interconnected network of the foreign currencies, and they are traded relative to eachother, and not taken into account as a whole (unless you are hedging currencies altogether to gold or commodities)
For commodities, i don’t see any definite signals, though there does seem to be a higher chance for an upwards price movement, in my opinion.
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Ya, that’s about it.
Comment by - - - - - - - - - ¤ - ???- ¤ - — December 19, 2009 @ 12:49 am
All have an element of risk to sell short or buy long, stocks are probably the least risky because the price is less volatile than FX or commodities.
Comment by Best Smartphone Software — December 19, 2009 @ 12:49 am
Stocks.
Any type of commodity has an expiration date.
Comment by !!! — December 19, 2009 @ 12:49 am