investing

Know the risks of selling stocks short

Bankrate Audio » Know The Risks Of Selling Stocks Short

Listen to audio

Editor's note: This is a transcript of the audio file.

You've heard the saying, "Don't sell yourself short." Those pearls of wisdom could apply to an investment strategy known as selling stocks short. I'm Barbara Whelehan with the Bankrate.com Personal Finance Minute.

Selling stocks short involves borrowing shares from a broker and selling them right away, with the hope that stocks shares will fall in price. Then when you buy the shares at a lower price to repay the broker, you can pocket the difference.

This is a dangerous practice. When you go long, or buy a stock with the expectation that it will go up, your losses are limited if the stock falls in price, since stocks can't fall below zero.

However, when you sell stocks short, your gain is limited by the fact that a stock can't fall below zero. And your loss is potentially unlimited because a stock can keep rising forever.

Plus, there are costs involved in setting up a margin account. So, selling stocks short can backfire big time. For more on this and other personal finance information, visit Bankrate.com. I'm Barbara Whelehan.

advertisement

          Connect with us
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

CDs and Investment

Need to invest $3K for the long term?

Dear Dr. Don, What's the best place to invest $3,000 for the long term? I'm interested in earning the best rates with low or no fees. Thanks, -- Cheryl Compounds Dear Cheryl, You've got (at least) three questions to... Read more

advertisement

Blog

Sheyna Steiner

One weird trick for successful investing

Think you have to be a rocket scientist to invest for the long run? Think again -- the most successful long-term investors do the least.  ... Read more

Partner Center
advertisement

Connect with us