Sell Short & BTC

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The word "short" has several meanings within stocks/options trading.  This post covers short selling stocks and buying to cover.   It's like a negative version of buying and selling stocks.


Entering a short position:

You can short a stock just as you can buy a stock but with the opposite intention. For simplicity, this example is a market order. I will explain the entry and exit of your position (stops and limits can also be used, but you should first understand the concept of shorting stocks).


Let's say you don't own a certain stock, but you think it will go down. The stock is currently at $10.00, but horrible news about the company just came out.

Enter the order as seen below:


click to enlarge



The stock will short at $10.00 (or reasonably close upon confirming the order)
What this means is the following:
You just sold 100 shares of the stock, though you never owned it.
It will show up in your portfolio as -$1000.00


If the stock price goes down to $9.00 and you close out the trade, you will have made $100.00

If the price goes up to $11.00 and you close out the trade, you will have lost $100.00



Closing out a short position:


To get that short position out of your portfolio, you will have to use “buy to cover” this might show on your interface as “cover” or “BTC”.


Let's say you shorted the stock when it was at $10.00 per share, and it's at $9.00 now.


Enter the order as seen below:


click to enlarge

You have now bought 100 shares to cover those you sold. Nothing will be in your portfolio after execution because you had sold stock that you didn't own (the short) and now, you are covering those shares (BTC).




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