When the stock market takes a downturn like we have been experiencing in 2020, it is important to be wary of ‘shorts’, otherwise known as short selling. Short selling involves selling shares that you don’t actually own with the expectation that the price of those shares will fall before you have to buy them back and pay for them.
In extreme market conditions like we are experiencing in 2020, traders need to be careful before taking part in short selling. When the market falls to extremely low levels, it can often bounce back very quickly and leave short sellers with huge losses.
It is also worth noting that short selling is a risky practice and should only be done by experienced traders. It is best to avoid short selling in unfavorable market cycles, as it can be difficult to accurately time when the market will rebound.
Those who do decide to short sell should be aware of the risks that come with it. Short sellers may have to purchase the shares at a higher cost in order to cover their losses if the price of the stock rebounds.
In volatile markets such as the one we are experiencing, it is important to be mindful of short selling. Although it can be a lucrative practice in the right market conditions, it can also be very risky when the market is falling into an extreme low.
It is always better to be safe than sorry, so traders should keep this warning in mind when deciding whether or not to take part in short selling during an extreme market low.