What is Short Selling and Pairs Trading?

Figuring out pairs trading could make you rich. However, it is complicated and not a sure thing. Software is what helps you in this regard. There is no way to read about the thousands of trades going on at any one time. No one reads that fast. There is also no way for a single human being to absorb a 10 year trade history of any particular stock let alone thousands of them. For trading pairs, you also need to understand what short selling stock is. The terminology alone would keep the timid out of the game.

Short selling is kind of simple even though when explained it often sounds complicated. It is basically getting some stock that is available from a broker’s own inventory of the particular stock. You are kind of borrowing it but not really. Sooner or later you have to replace the amount of stock you got from their inventory with other stock shares. Now imagine you bought 100 shares of the Widget company at a dollar per share as a short sale. You are, in essence, getting it from stock shares the broker you are using already has. Now at some point the broker is going to want his money. It may be in the form of interest on the shares you “borrowed,” or it may be a requirement for you to replace them with shares on the market.

Now if the Widget company you bought at a dollar is selling on the market for fifty cents, then you make the difference in profit replacing the shares you got from the broker. See why stock trading is not for the timid or uneducated? However, you can educate yourself simply by reading about how the system works. And you can drive away timidness by successes growing over time. An expanding portfolio that is profitable is one of the best ways to no longer be timid about trading stocks.


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