12 Pro And Cons Of Short Selling Stocks

1. Like other types of derivatives, short sales allows you to potentially reap a large return without putting much money up front.  2. Overall, short-selling reduces volatility and increases liquidity in the market. 3. Short selling can be profitable if the investor correctly predicts which stocks  will decline. 4. You can make money out of the stock prices of companies that are doing poorly :).  5. Shorting a stock is one of the few ways to make money in a bear market. 6. Short-Selling also leads to better pricing. It helps generate more accurate pricing and prevents securities from becoming over-valued. 7. Shorting can hedge your investment if you already own the stock, didn't sell it before the downturn, and think it will only lose value. You can short it, and at least profit from the remaining downturn. Cons: 1. Short-Selling is not without risks. 2. If the stock sold short rises sharply, the lender may require additional collateral or require the short seller to buy back the stock to close out their short before your planned time frame. 3. Your loss, if you are wrong is open ended.