Q: Could you explain selling short to me?
A: Thanks for the question. Shorting is generally considered more risky because of the risk-and-reward factor. Consider this: In the case of buying a stock, your maximum risk is the price of the stock and reward may be infinite. For example, when you buy a stock at $10, your maximum loss will be $10, but there’s no telling how much higher the stock can go, thus the reward may be infinite. On the other hand, shorting the stock is the total opposite. Your maximum return is the price of the stock, but your risk in unlimited. Thus, it is more important to have a stop loss when shorting. In order to be able to sell short, you must have a margin account, since you are borrowing the stock from the brokerage. Your brokerage must have the shares available for you to short a particular stock. Also because of the “Uptick Rule,” the stock must tick higher before a short-sale order can be executed. This adds to the challenge of short-selling.