You can make money:Shorting in stock market

By Arun Dahal Khatri

Profiting from market downturns, short selling represents a unique avenue for capitalizing on asset price declines. This strategy holds a distinct place within financial operations, allowing individuals to generate income even as asset values decrease. Short selling is an intriguing mechanism that doesn't necessitate actual asset ownership. This unconventional approach has yielded favorable outcomes for those well-versed in its intricacies. At its core, short selling revolves around capitalizing on declining asset prices. It is a strategic maneuver that allows individuals to generate profits by leveraging the market's downward trajectory. Unlike traditional investment methods that rely on purchasing assets at lower prices and selling them when their values appreciate, short selling flips this conventional sequence. Instead, this strategy enables investors first to sell assets they don't yet own, intending to repurchase them at a lower price later, thereby pocketing the difference.

The mechanics of short selling involve a symbiotic relationship between investors and brokers. For those venturing into short selling, brokerage firms play a pivotal role. Through a mutual agreement, investors collaborate with brokers to facilitate the process. The broker lends the investor the asset, which is then promptly sold at its prevailing price in the market. This initial sale generates revenue for the investor. During this phase, the investor doesn't possess the asset, showcasing the unique characteristic of short selling. Having entered the market through short selling, the investor's ultimate goal is to capitalize on the anticipated downward movement of the asset's price. If their prediction rings true and the asset's value diminishes, the investor can repurchase the purchase at the reduced price. This crucial step is often called "covering" the short position. Subsequently, the investor returns the borrowed asset to the broker, closing the temporary position. The differentiation of the initial selling price and the subsequent repurchase price constitutes the investor's profit.

In essence, short selling thrives on the art of prediction. The investor must accurately forecast the future trajectory of an asset's value, gauging that it will indeed decline over the stipulated period. This predictive element introduces risk, as an incorrect estimation could lead to losses instead of profits. Therefore, short-selling success hinges upon a comprehensive understanding of market dynamics and adept analytical skills to identify trends and anticipate market movements.
The allure of short selling lies in its potential to generate income even during market downturns. It provides a counterintuitive method to navigate turbulent financial waters by allowing investors to exploit the market's inherent volatility. However, this strategy has its complexities. Short selling demands a profound understanding of the market, a close rapport with brokerage firms, and the ability to predict price fluctuations precisely.

Here are four practical steps that you can do shorting  in the asset market and make money 

Step One: Borrow shares at a high price from the broker.

For example:

Mathematically,

Your initial price of stock borrowing is 100 shares @ $150 each

Now, the total price of shares is $15000

Second step: Sell the shares at a high price 

For example:

Instantly, after borrowing the shares, your first goal is to sell the shares at a high price or the buying price as far as possible

If you bought the shares for $150 each, then you have to sell the shares at $150 or more 

Third step: Buy back the same shares at a lower price

After a specific time, if the market declines and the price of the stocks is down, your goal is to buy back the same share at a lower price and include it in your portfolio.

Mathematically,

If you buy back the same shares at the price of $100 

Then,

Now, the total buying price of the claim could be $10000

Fourth step: Return 100 shares at $100 each 

After buying the shares, you have to return those particular shares to the broker to settle your transaction with specific broker fees and interest rates. 

For example:

Mathematically, If the selling price of the share is $15000 and the buying price of the claim is $10000 

Then,

Profit =SP-CP or $15000-$10000

 =$5000

Note: You have to pay some broker fees and interest rates; therefore, after deducting all these costs (broker fees and interest rate ), all your money is your profit from shorting.

By doing this process, you can make money if the market declines and the stock price decreases. But, you have to take the risk while shorting; in most cases, the stock market shorting is not working and is legally forbidden. Doing the shorting helps you make money while the market declines, but most of the time, we have to analyze the county's macroeconomics and decide on shorting.

Before doing the shorting, we have to see the most critical content.

1- Risk Factor: Doing shorting is riskier than buying the shares from the stock market. If the specific stock price goes up after you short, you have to bear a significant loss from the market. Although it's riskier, you can shorten and make a handsome amount of money, and the stock price should go down.

2- Advantages of shorting: The first advantage of shorting is you can make a good profit in a short time if the market goes down and the price of the particular stock declines. In addition, you can also sell the stock which you cannot own.

3- Disadvantages of shorting: If the stock price increases after you do the shorting, then you have to bear a significant loss from the market. There is no limit to the market, so you have to pay a considerable cost if the stock price skyrockets.

4- Legal option: Shorting is not legal and doable in most markets. Therefore, you have to see the legal formation and market terms and conditions for doing shorting. You can also get counseling from your broker and market analyst.