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Short trading is a strategy in which eg a scope markets investor borrows shares of a stock at a certain price in hopes that the market value will fall below that level when it's time to pay for the borrowed shares.
Shorting is typically done using margin and these margin loans come with interest charges, which you have pay for as long as the position is in place.
The best possible scenario for a scope markets trader executing a short trade is if the stocks fall to $0, they will not have to repay anything to the lender of the security, and the return would be 100%
A short squeeze occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall, to buy it in order to forestall even greater losses
This is what was happening at GameStop over the last few weeks where hedge funds had shorted the $GME stocks but the Reddit investors decided to buy them, causing the share prices to rise.
The hedge funds were then forced to close their short positions and buy the $GME shares back at much higher prices than they had borrowed from the brokers, sending the price even higher, this is basically short squeezing.
It’s basically like eg najua bei ya mahindi inaenda kuanguka so nachukua a hundred bags from Mutai at 4000 each naziuza immediately then nangoja zifike 2000 each nazibuy tena namrudishia her 100 bags of maize
The problem sets in when sasa bei imeanza kuenda juu and I now have to buy back the 100 bags at 5000 each to return to her
A long trade on the other hand is where I buy the 100 bags of maize at eg 4000 bob each then ningoje market iende juu I sell at eg 5,500 each.
Simplified enough?
Simplified enough?
There is a load of trading resources and materials which scope markets provide for free here, take a look http://scopehub.co.ke
