HOW TO SHORT STOCKS ONLINE
If you are just learning how to buy stocks for beginners, you might have heard about something called shorting stocks. If you have an interest in learning how to short stocks, where can you go to get your feet wet and take a trial run? There is actually a free online stock simulation game called Wall Street Survivor where you can sign up for free and learn all aspects of buying stocks including how to short them. You are given $100,000 in virtual money and with it you can buy and sell stocks just like you would with an online broker.
One of the options with WallStreet Survivor is to short stocks with your money and I have a screen print below of the three trades I have going in my portfolio:
My first two selections are regular buys and for each one of those I have a gain so far. My third pick is where I have shorted 100 shares of Apple at $198.97 and as of today I have lost money because the stock has gone up. If the stock were to continue going up, there is no limit to what I could lose, theoretically.
Shorting stocks online is not something any beginner should do because it is much more risky than just buying a stock. When you buy a stock, all you can lose is everything you have invested but with shorting, there is no limit to your potential loses if things go bad.
In order to short a stock, you need to first borrow it from your broker. You get the money for it and at a later date, you will need to buy it back in order to give the stock back to your broker. For instance, if I had really shorted AAPL at $198.97, I would have gotten $19,897 for it (minus fees). Right now though, if I wanted to get out (cover my position) I would have to pay over $21,000 for the same hundred shares for a loss of over thirteen hundred dollars.
The stock can continue to rise and if it did, I would have to pay more and more to buy my hundred shares back which I will need to repay my broker with. That is why storting stocks is so dangerous: there is no ceiling to what you can lose. Actually there is and it will be the limit your broker imposes on you with the type of assets you have in your account. Your broker will not just let you lose more and more money that you don’t have and so at some point, your broker will force you to cover so that he can get his money back. At that point, you will have lost much of what you have and you will have no further position in the short.
If you want to see what it is like to short a stock without the real risk, Wall Street Survivor is a great place to test the waters. You can get all sorts of great information there with your own free virtual money portfolio and trade online just like you would with real money at a real broker website. They even have an expert stock picking section if you are interested in reading opinions of the best stocks to buy right now in 2010. It is often not wise to short stocks but if you want to find out what it’s like to do it, now you know where to go!
