Most people just buy the shares of a stock hold them for some time and sell them off either at profit or at loss depending upon the circumstances. There are some other methods of making money in stock trading. One method is called shorting stocks.

Shorting a stock requires no investment. Shorting means that you borrow a number of shares of a stock from your broker on the promise to return them at a particular time.

Stock shorting can be illustrated by a concrete example. Let us say a stock ABC breaks out of resistance at $23 and is presently trading at $18. With your experience and analysis of the stock trend, you conclude that this fall will continue. You decide to borrow 100 shares of the ABC stock from your broker and sell them. You have an obligation towards your broker to return the stock at a later date.

Now you sell the stock at $18. You make $1,800. Within a couple of months, you find that the price of ABC has further slipped down to, say, $8. You buy 100 shares from the market for $800 and pay them back to your broker. You earn $1,000 in a short span of time without spending even a single penny from your pocket. This is called shorting a stock.

Most experienced traders resort to this method of making money in stock trading. The presumption behind this kind of strategy is that stock prices have a greater tendency to go down faster than to rise up.

This, however, does not mean that you always make money. Stock trading basically is a business and like every other business it involves risks. Suppose the price of the stock rises against your expectations and you have to buy it at a higher price than the one you sold at. You may have to pay the loss from your own pocket.

If you are a shrewd and seasoned stock trade, you form an idea of the possible losses and gains before you start shorting. By and large discounting the losses, you tend to make profits if all other factors remain equal.

For example, you incur a total loss of $400 in four trades out of ten and gain $800 in the remaining six trades; you still stand to gain $400 dollars in ten trades. What is important is that you should develop your own system of shorting. Short selling is one of the best ways of making money during the market crash. This is how shrewd stock traders make the most of best and worst times in stock trading. They are the true winners during bear market when all other traders run away from it.

Shorting is reverse process of stock trading. In normal stock trading you first buy a stock and then sell it. In shorting, you first sell a stock and then buy it.

The veteran stock traders know that stock market is basically mercurial in nature. It is a game of ups and downs. Ordinarily, you buy a stock at a lower price, wait for an extended period of time and you may still have to sell it at a loss. Obviously this kind of traditional stock trading is risky.

In short selling you do not have to wait for an extended period of time. You generally have an idea of the span of time by which you will buy back the stock.

It is said that the price of the stock of Northern Rock, a UK bank was £12 in February 2007 and it fell to £2 in September. Imagine the profits made by those who had the foresight to go for shorting the stock. They made over £1 billion (over 2 billion US$) in just a few months. Though this may have been a rare case, but it amply demonstrates the immense power of shorting as a way to make millions without spending any money from one’s pocket.

The question, however, arises how do you know what stock to sell short?
Although it is difficult to accurately predict the price trends, one thing, however, is sure that the values of good stocks, especially the stocks of Fortune 500 companies do not fall easily. The best bet is to go for newer, smaller and upcoming companies. When a stock is valued at around a dollar, even a small amount of fall in its value can make a dramatic difference. For example, a stock selling at $0.40 a share can drop to $0.20 a share in course of a day which means a loss of 50% of its value. Any imaginative investor cans double his money in just 24 hours.

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