All language subtitles for 4. Short Sell And Buy To Cover Orders

A short sell orders relate to shorting a security, and that's a whole big practice around shorting

and how to identify short selling and all this kind of stuff.

But let's walk through how the actual order works and what's going on with a short sell order.

So selling short or shorting a security is a practice that enables you to profit, if you correctly

predict that the price of a security you don't own will fall.

So that's the idea.

You don't own the security yet.

You think it's going to fall and you're going to place a short sell order.

That's an order that kind of lets you take advantage of that situation.

So let's walk through an example to make that a little bit easier to understand how it actually works.

So let's say you think a security is overvalued and we're going to use dollars again in this example.

Again, use your currency.

But let's say the price is at twelve fifty.

You say that's way too high.

That's going to go down.

So what you do is you're then going to sell borrowed shares, let's say at 12, 40, the price you believe

to be, you know, at twelve fifty is the price that you believe to be inflated.

So you're going to sell these shares.

You don't own me or borrow them and you're going to sell them at that.

And then you enter a short sell order for 1000 shares, for example, borrowing the twelve thousand

five hundred dollars worth of shares one thousand times twelve fifty each, selling them on the open

market and collecting the cash.

Right.

So I'm borrowing shares.

I'm selling for twelve fifty.

I'm collecting the cash.

And then if the security price does indeed fall, you can use the next type of war to complete your

short sale and make a profit.

That's the idea behind it.

It's a two step process.

Thus the next step in the process is a buy to cover orders where they work together, short sellers.

So buy to cover order is, let's say the security did as you predicted.

And if it did go down, it fell down to 10, ten, 50.

Right.

So let's say it went down.

You would place what's known as a buy to cover order to complete the short sale.

Your buy to cover order would repurchase the 1000 shares for ten thousand five hundred and return the

borrowed shares to your online broker.

That's kind of how it works as you're returning these borrowed shares and purchasing them at one thousand.

And because you bought the shares for two thousand dollars less than you sold them for, then you made

a two thousand dollar gain.

Is the idea of using these these numbers here as far as this example?

So you're you're borrowing shares and you're selling shares in you're doing in two steps as far as a

short sell order and then a buy to cover order.

And again, the whole point of short selling is you're looking at things that you think are going to

go down in price.

That's the whole idea, is that the downward movement.

So this is where your downward trend lines in things, things indicators are showing a downward price

move is we're going to come into play if you want to sell short.

OK, some very important considerations with short selling.

In order to sell short, you have to have what's called margin privileges and you're in your brokerage

account.

That means you can trade with more money than you actually have in the account if you wish.

This is the borrowing part.

It might also be known.

It's also is known as buying on margin.

You know, or you know is the idea.

And in effect, you're borrowing.

Right.

So you're basically you're using more money than you have in your account.

You must maintain, though, enough purchasing power in your account to carry out a buy to cover the

order on your short sale.

So if I'm short selling something like for that twelve thousand five hundred, I need that amount to

cover that.

And that way, if the and where the large part comes in, if the price of your stock actually increases,

remember, you're you're doing this thinking it's going to decrease.

You're really betting hard on that.

But let's say it actually increases doing the opposite of what you thought and you don't and you don't

have enough money in your account to buy the shares back at the higher price.

In effect, taking a loss.

You will face what's called a margin call.

Basically, it's a common thing.

It's a demand by your broker to put more cash or securities in your account to be able to cover the

trade.

So borrowing money on margin or leverage is another way of saying what you're leveraging.

Your money can be really either accelerate gains or accelerate losses.

So if you want to get involved in short selling, it's something to be very, you know, really develop

your education around that even even further to get really in depth around short selling.

The tools, the technical tools that we're learning here will help you use the indicators, identify

short downward trends and opportunities.

But there's a lot of this, you know, ordering part that can be a big part of that as well.

And so it can be a challenge.

So, for example, in the year 2020, many people thought that Tesla, as far as a stock is a security

is a stock.

So, for example, was overpriced and it was way overpriced.

So they thought so they shorted the stock that was way too overpriced.

We're going to short it.

But in twenty twenty, what happened was Tesla rose about seven 1/2 percent, just a huge amount of

rise in that.

And it led to headlines like like this.

Like Tesla, short sellers have lost more than thirty nine billion betting against the stock in twenty

twenty.

Because, again, they're saying it's going to go down and when it goes up and it goes the opposite

direction, that's how they incur their losses, you know?

In fact, the opposite, more traditional buying of securities where I'm going to buy low, I'm going

to let it go up high.

I'm going to follow my upward trends and a solid a profit.

In this case, you're doing the exact opposite.

You're betting it's going to go low.

So just like if you buy and you think it's going to go higher and it doesn't, it goes the opposite

way you're going to lose money is the same thing as some short just the opposite.

I think it's going to go down.

Boy, it didn't go down.

It went up.

I'm losing money, in fact, and it goes way up.

I'm losing a lot of money and I'm buying on margin and doing those things, too, which is part of short

selling and some complexity to it.

Then it becomes even more of a challenge.

So, again, short selling is something to be just be a little bit more aware of as far as some extra

or other.