- Shorting stocks involves profiting from falling stock prices by selling stocks the sellers do not own.
- Sellers usually use margin loans for those stocks with interest charges accruing as long as the position is not closed. Those interest charges do have to be paid and eat into the potential profit or worsen the loss of shorting a stock.
- Brokerage firms can impose margin calls if the stock being shorted rises in price requiring additional capital to maintain the shorting position. The broker has the right to close out the position if that capital is not met.
- The sky is the limit for potential loss. If a stock rises several folds then it will cost several times the price of that stock to close out the position. It can bankrupt a person who is willing to take that gambling risk.
- Fed interest rate trending down benefits the Financial, Technology, and Real Estate stock sectors the most.
- The 50 bp drop last Wednesday drastically increased the chance of a softer landing and the probability of the high-growth stocks, especially in the Financial and Technology sectors emerging with explosive growth.
- Betting against Financial and Technology stocks, especially high-growth stocks can literally decimate a person's life savings or worse bankrupt someone who has a heavy position in shorting those stocks.
- Any positive company news, good EPS, Fed interest rate drop, and general positive market trend are just a few examples that can put a short seller into carrying a huge debt.
- Investment in a stock with high potential can be the best decision anyone can ever make. But betting with money you don't have and wishing a stock to go down with the possibility of bankrupting yourself and/or burned your family's life savings is just a bad idea.
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