First let’s evaluation what we learned within the previous video some humans feel first-rate to draw a timeline So i simply draw a timeline we are studying to short in the earlier example Let me make a timeline to illustrate When are quick agents beneficial Now let me draw the inventory cost of IBM that is-ok let’s painting Then name this graph the timeline it’s established on days Then come to draw the inventory price of IBM that is the Y axis We count on the inventory rate is now $ one hundred It fluctuates like this when trading shall we speak about this later? Believe we at the moment are at this point At this position we grow to be day zero So what would quick agents do? Let’s first look at the crisis of this short vendor i will be able to draw a stability sheet of him So now this brief vendor He owns assets and liabilities His property-do not worry about his guarantee requisites now And other issues on the whole before he can borrow the stock He must have distinct assets definitely Let me count on some of his normal collateral We expect that he has $ 60 in his account He had $ 60 in property on day 0 Then nowadays- i have finished some analysis and i feel He can’t see this a part of the inventory rate I imply, if he knew it, it could be a god. In that case, that you could enhance your belief briefly promoting. But all he can see is the past? If he makes a inventory chart, he can best see- i alter color He can only see the golf green part He can’t see all these future matters but he’s convinced that IBM’s inventory fee will fall So what he did was borrow an IBM stock that day That on at the moment he borrowed a share Then he now owns a share of IBM He also owes a share of IBM, right? After you borrow it earlier than doing some thing that you can already use it as an asset and also you need to pay it back If you do not want to be on loan simply must return it presently but what he’s doing now could be selling this IBM He sold the stock and bought $ one hundred given that that is the market rate right now this means someone is willing to pay this rate at the moment exchange IBM inventory that is day zero We then assumed that IBM released its profits report And the situation is dangerous I have no idea when it was once announced probably it used to be announced by using IBM on at the present time Then the inventory rate started to fall after which fell again. It took a very long time for folks to recognize how dangerous this report is just that day the inventory fee had fallen to $ 50 quick agents feel costs are low enough now feel the inventory price cannot continue to fall loads at the moment we anticipate it’s the tenth day Ten days have handed On the tenth day he determined to shut the function Then on the tenth day his stability sheet I redraw one let’s examine what he has on the tenth day He owns $ a hundred and sixty $ 60 of which he had before used to be the genuine work sales this is his asset his liability is He owes a broker an IBM stock The dealer sincerely owes the fellow who happens to own IBM stock This IBM inventory Now he desires to close the function What he has to do is he takes out $ 100 No sorry i don’t need to take out $ a hundred Now it fees handiest $ 50 for one IBM inventory, would not it? So he bought $ 50 of IBM inventory So compared to the prior $ one hundred sixty He now owns $ a hundred and ten and an IBM inventory Then what he has to do is put this stock of IBM Return to the brokerage bank to repay the debt So he did it He has no debt but just owns $ a hundred and ten in property So he made $ 50 What wants to be clarified is He bought at this time and bought at this time this is the opposite of most inventory trading it can be as if you happen to reversed time however this can be a excellent crisis for short retailers but he also makes large errors conveniently. Let’s take a look at what made him make a significant mistake Let me draw a chart of yet another IBM inventory Let’s draw the time worried on this question We stated it was the same a while ago Traded round $ 100 Then on at the present time quick seller decides to move brief and then began He borrowed an IBM stock So he has a debt of IBM Then he sold the stock for $ 100 Then we assume that on these days IBM released the earnings record we name day Now this document suggests very good results higher than any individual expected So IBM’s stock cost is bullish sooner or later reached this degree At this factor i will discuss the psychology of brief promoting And quick strain here he might believe that is most effective a temporary quandary after which proceed to maintain the inventory however then the stock price endured to upward thrust and then rose again. He nonetheless thinks that is handiest a transitority stock rate will fall however at some factor He began to tolerate the torture of rising prices We anticipate that the stock fee of IBM has risen to $ a hundred and fifty He said he could not proceed I feel you will have observed that short promoting will A terrible drawback or a high danger You might lose an impulsively big sum of money What happened now? Let’s suppose he wants to shut a position now this is the tenth day of this timeline What are his belongings and liabilities now? On the tenth day his belongings had been $ a hundred and sixty on account that he was short he had $ one hundred sixty but nonetheless owes a share of IBM stock If he desires to repay this IBM So what’s going to he do? He had to get a high price of $ one hundred fifty from the market buy a share of IBM So the fashioned $ a hundred and sixty Now he has handiest $ 10-$ 150 left to purchase IBM inventory For $ one hundred fifty of $ 160 to buy one share of IBM inventory Then get a share of IBM inventory Then return the inventory to the dealer And weakened his own assets. At this factor he has simplest $ 10 left When the inventory price rises through $ 50 in this state of affairs He misplaced $ 50 that is, he bought at a low fee and then purchased at a excessive rate? Then the risk of going quick now could be for you Already apparent that’s, his loss is infinite. What if IBM’s stock cost failed to rise to 150 but $ 200? He’s going to lose $ 200 He would lose $ a hundred if it rose to $ 200 If it rises to $ 300 he will lose $ 200 thus the quantity of his loss not restricted to his preliminary position more than $ one hundred Or any other preliminary IBM stock rate can also be an unlimited quantity So it could quite wreck your steadiness sheet Or make you bankrupt suppose again If I purchased IBM inventory at this place I need to point out I purchased quick stock at this factor So what is the worst drawback? The worst thing that may happen is IBM shares fell to $ 0 So my loss is-the stock fee can simplest fall to $ 0 at most i don’t owe any individual a limiteless sum of money when you consider that of this infinite likelihood of inherent losses are you able to say that it used to be a blow to brief agents? They’ll lose unpredictable amounts They have to be more cautious make a decision when they’ll function And do the whole thing possible just in case we can talk about later Like rated margin and an identical This almost guarantees- can be used by brokers short retailers can repay the inventory effective method Anyway, see you next category

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