What happens when you trade in the market?
It’s not uncommon for people to trade stocks in the trading hours that the stock market is open.
It’s called “short selling” and is an important strategy for traders.
“There are people that have a long position in the stock, they’ve been holding it for a long time, they know it’s not going to go anywhere,” says Scott Pendergraft, a trader at TD Ameritrade in Winnipeg.
“If you’re shorting the stock and you’re right on top of it, it doesn’t matter what the market price is.
It goes up or it goes down.”
For investors who want to trade the stock at a low price, trading through an exchange or trading by phone are the two most popular ways to do so.
“You can’t just sit on the phone and do this,” says Penderl, adding that you’ll need to have an idea of the market’s price and know when to move your money.
“So it’s more of a long term strategy,” he adds.
For the uninitiated, shorting stock means you wait until a stock is priced to be certain of its price, and then when the price drops, you sell it to get a higher price.
It’s also a risky strategy.
“Shorting is very risky,” says Jason Koonin, chief market strategist at Scotia Capital Markets in Winnipeg, adding there’s a risk that a stock could go up in value.
“It can be pretty high volatility, so you don’t want to be buying stocks,” he says.
“If you do it, make sure you don and you don to do it again.”
Penderl says shorting is a strategy for those who want a lower price, but don’t have the money to buy the stock.
“For people who are just getting into the game, they don’t necessarily have a lot of money to put into stocks,” says Koonins.
“They might be a bit short, but they’ll see a lot more returns than a lot people.”
For Penderharts, short trading is the only way to trade at a fair price for a while.
“I’ve always said it’s the best way to get to a fair value and have a reasonable return,” he said.
“When you have a good portfolio and you know what you’re looking at, it’s a great way to stay under that cap.”
If you have more questions about trading stocks or trading on a daily basis, you can find more information from the CBC Marketplace Marketplace section.