When the stock market crashes and people lose their investments, where does that money go? Who gets rich?

People who sell short.

Short selling is the process of lending shares, literally, a broker and sell the shares to another person. Then buy the shares back at a lower price will give the stock back to the broker and money.

Thus, for example.

If Yahoo stock is trading at $ 1.00 and you think that Yahoo values ​​going down, a short operation starts with your agent and borrow 100 shares of them, then sell the shares to someone on the market price of $ 1.00 each for a total of $ 100. So now you have extra $ 100 in your pocket and you own your broker 100 shares.

If the value of the shares low

as expected ... now buy the shares back at lower price and gives the broker his actions. So if the price drops to $ 0.80 .. you take the $ 100 he had in his pocket and buy the stock from $ 0.80 a piece for a total of $ 80 and give the people back to the corridor and left with $ 20 profit in your pocket.

1 comentarios:

Blogger said...

I would suggest that you stick with the #1 Forex broker - AvaTrade.

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