The phenomenon of short selling has risen to the surface again after GameStop (GME) shares jumped high for a week due to stock dealers who practice short selling. As a result, retail and dealer investors also control the movement of GME’s share price. Then, how is the practice of short selling in the world of stocks.
This transaction is used by investors by borrowing funds to sell shares that are not yet owned at a high price in the hope of buying them when the share price drops.
The mechanism is that traders borrow funds from stock brokers, whose aim is to sell shares (which are not yet owned), with the hope that the price will go down.
If the price really drops, the trader will buy it and return the share loan to the broker, and the trader will get a profit. On the other hand, if the price goes up, the broker gets the profit.
Short selling must be based on analysis, not speculation.
Not a few market players think that short selling is like a legal gambling practice on the stock market.
“Yes, so if we buy shares, it’s not short selling either. For example, if we buy shares, is it gambling? This goes back to the fundamentals and analysis,” said President Director of RHB Sekuritas Indonesia, Iwanho in CNBC Indonesia’s Investime program, Monday (1/2 / 2021).
Iwanho added that short selling should be based on certain stock analysis, not speculation.
If you don’t use a specific analysis from a fundamental point of view, it has the potential to cause big losses. This has led many people to analogize short selling as gambling.
Beginners are not suitable for using short selling techniques
. It isbetter to make the right prediction before selling short. That is why the short selling technique is not suitable for beginners because they do not have much experience in making speculations.
