How to earn money when an stock or stock index falls? Essay

We all know that at some point the stock market will go down. We do not know when, how, or how much ... not even if it will be below current levels. But the truth is that markets work thanks to volatility, and as the popular saying goes, "everything that goes up, goes down". What not all investors know is that it is possible to earn money when an asset goes down. The fundamental dynamic of the stock market is that we can buy shares of companies or other assets. If the price of these assets goes up, we sell them and we have generated a profit. If it goes down and we sell cheaper than what we have bought, we will end up with less money than in the beginning. Up to here everything very elementary. But how is it possible to earn money when something goes down in price? There are different ways to have exposure to the downside, some more complex than others. All bearish strategies require a little more sophistication on the part of investors, since sometimes the implications of positions are complex and we should be familiar with how they work. Apart from the flexibility that comes from being able to invest downwards for our individual strategies, as a whole the bearish positions make the market more efficient at many levels. Sale of shares in short The most basic way to generate profits when a low price is short selling that action (short sell in English). What we really do when we sell a stock in short is to borrow the shares from a third party in order to sell them in the market. If the price goes down, we can later buy back the cheapest shares and return them to the person who has lent them to us. Our benefit will be the difference between the price for which we sold them and the price for which we (re) buy them, to which we should also subtract the interest rate that is paid to the one who has lent us the shares. The whole process of lending the shares is managed by our broker, who will take care of demanding guarantees to ensure the return of the securities to the lender. Considerations when selling a stock in short: The losses hypothetically are unlimited since the price in theory can go up to infinity (forcing us to buy at very high prices). In practice, the broker controls that we can face the future repurchase by demanding guarantees. In case of not having the required guarantees, it is possible that the broker proceeds to the forced closing of the position. In Self Bank it is possible to carry out this operation through the Fivefold account and the Tentuplica account (6/6 This number is the product risk indicator, being 1/6 indicative of lower risk and 6/6 of higher risk. it is simple and can be difficult to understand). We will incur a rental cost on the shares when borrowing them, since the lender will demand an interest in exchange for the securities.

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