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Friday 4 September 2015

How to make money in bearish market?

Bearish market means the market in which most of the investors tend to sell the stocks dragging the stocks prices down.

For example - In 2008, recession triggered heavy sell off of the stocks across the stock markets all around the world. It is called as bearish market.

Many people believe that bearish markets are always the cause of heavy loss but in reality you can make money in falling stock market as well.
Below is the list of ways to make money in bearish market.

  1. Short sell the stocks
  2. Buy put options

In short selling trick, you sell the stocks by borrowing from someone. Then after stock price falls, you buy back the same stock at lower price thus making the profit. Please note that risk is unlimited in this method if stock price soars. At higher price, you will have to buy the stocks and return it to the stock lender. But if stock price falls very rapidly, you may make a lot of profit as well.

In second method, you buy the put options which give you option to sell the securities at pre-determined strike price. If prices rise, you make limited loss in terms of premium paid to the seller or writer of the option. But if prices fall, you will make the profit by buying the stocks at lower prices and selling at strike prices.

What do you think on this topic? Please express your opinion or ask any question through comment below. You can write to me at reply2sagar@gmail.com

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