What is short selling? This video explains short selling in the stock market in simple terms.

⏱️TIMESTAMPS⏱️
0:00 Introduction
0:51 Long position in a stock
1:30 Short position in a stock
2:26 Actual share price vs expected share price
3:24 Short selling and company bankruptcy
4:00 Risk of short selling
5:05 Short selling summary

To understand how #shortselling works, let’s start with getting familiar with the terminology of long positions versus short positions. Let’s take a look at the share price of a fictional company called Toy Giraffe Inc. The share price has been going up and down in the $80 to $100 range over the past years. Meet John. He does not currently hold any shares in Toy Giraffe Inc, and expects the share price to go up. John is going to take a long position. Meet Jane. She does not currently hold any shares in Toy Giraffe Inc, and expects the share price to go down. Jane is going to do the opposite of John, and take a short position, or short sell.

“Going long” means that you expect a share price to go up and take a position accordingly. You buy a share, and intend to follow the “buy low, sell high” strategy. Your loss is limited, as you could lose only the original amount you invested. Your gains are unlimited, if the share price continues to rise.

“Going short” or “short selling” means that you expect a share price to go down and take a position accordingly. You sell a share that you borrowed, and intend to follow the “sell high, buy low” strategy. Your gains are limited, because the “best thing” that could happen to you is for the company to go bankrupt and its shares to sink to zero. Your loss is unlimited, as you could lose many times the original amount of your short position.

Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market #investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!