Business & Finance Stocks-Mutual-Funds

Why Shorting Stocks Is Bad For Beginners

Beginners in the stock market have a lot to learn and shorting stocks should not be one of them.
For the average investor there is just too much risk of losing money in something that they probably don't understand anyway.
Shorting stocks is where you bet against a stock and hope it goes down rather than up like a normal investment.
It is dangerous because you are borrowing the stock and your broker can take you out of the position at any time if they feel your account doesn't have enough money in it.
So, you might be losing on your "bet" and not even be able to wait longer to see if your luck reverses.
Normal stock investing involves buying a stock and holding on to it hoping it goes up.
You own the stock and it is yours to do with as you please.
If it goes down, you can sell or hold on to it at all times.
If the stock continues to go down you can ride it all the way down to zero if you want.
But in order to be sure of being able to short a stock if things go bad, you need to make sure you maintain a cash balance in your account that will more than cover any potential losses.
Your broker will also want you to have a track record with them which is another reason why it is not a good strategy for a beginner to take.
Unlike when you buy a stock and all you can lose is your initial investment, when you short a stock you can lose an unlimited amount.
As long as the stock keeps going up (which is bad when you short) you will lose money.
Shorting stocks has gotten a bad reputation among the investing community because you are betting that a company will do poorly instead of well.
It is something that helps drive the market down and that is not a good thing in the eyes of most investors.
It is much more risky than buying stocks and a lot of people have been hurt doing it.

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