An Introduction to Short Selling

The simplest explanation of short selling is that it is opposite to going long. When going long you buy a financial instrument like stock or currency pair, wait for appreciation in price and then sell the instrument for a profit. In short selling you sell the instrument first, wait for a depreciation of price and then buy the instrument to make a profit. The strategy is a little more complex as it requires burrowing of the instrument before you can sell it. The burrowing is usually done from a broker who charges an interest margin for it.

Many markets and nations have restrictions on short-selling. Many believe that unregulated short selling can cause adverse effects on market. The speculation is a collective effort of short sellers can create a negative sentiment in market and can cause price decrease. Shorting can create adverse effects when there is a market crisis or when followed by spreading false rumors and when traders are doing naked short selling - selling the instrument without actually burrowing that.

There are no short selling restrictions on online forex trading or online CFD trading. The fact that it is not controlled by any nation or market allows traders to easily go long or short at any time they want. Actually in global forex market the price changes show high correlation and offer good chances of short selling.