Your cash balance will increase by $2,000 and the value of your shares will drop by $2,000. Your stockbroker is going to borrow the shares, and offload them on your behalf. So, you make an order to short sell 100 shares of DAL and you get filled $20. Let’s say you do some research and believe that Delta Airlines ( NYSE: DAL)’s traffic is on the decline and oil prices are heating up and you think the stock will continue its downward trajectory for at least the short-term. The best way to understand this trading strategy is by looking at the following example. The profit is simply the difference between the price at which the short-seller sold the shares and the price he purchased them back at less any transaction and borrowing costs. Short-sellers profit by offloading the borrowed shares at an elevated price and subsequently repurchasing them at a lower price if the price of the stock goes down. Traders that engage in this type of market speculation are known as short-sellers or shorts. This strategy first involves borrowing a certain amount of shares of the stock you wish to sell at a market-determined interest rate and then selling those borrowed shares to profit from a future market drop. Short selling is a type of strategy that traders use to speculate on a future drop in the price of a particular stock. Let’s have a look at the definitions of “short selling” and “short squeeze,” and then dive into the VW short squeeze of 2008. 28, 2008, it plunged 58% in four days and by September that year, the shares were down 70% from their top, giving away most of the squeeze.Īlthough it has been over a decade since the Volkswagen short squeeze, there are still many lessons that day traders can learn from this particular stock market event. Thirteen years ago this month, the Frankfurt-listed shares of Volkswagen ( VLKAF) more than quadrupled in two days, briefly making the German automaker the most valuable company in the world.Īfter the stock’s peak on Oct.
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