I want to share a topic that many of you often ask about: what is short selling and whether it is really suitable for regular traders.

Actually, short selling is not a new concept. It is a trading strategy that allows you to profit when the asset price decreases, opposite to buying when the price rises. Its operation is quite simple: you borrow a security (usually from a broker), sell it immediately, then wait for the price to drop to buy it back at a lower price. The difference between the selling price and the buying price is your profit.

Let's take a specific example. Suppose Company A's stock is trading at $50. You believe it will decrease, so you borrow 100 shares from the broker and sell them right away. A week later, stock A actually drops to $30. At this point, you buy back 100 shares at $30 each, return them to the lender, and pocket about $2,000 in profit (excluding fees). But what if the price rises to $60 instead of falling? Then you would lose about $1,000. That’s why short selling is considered a sophisticated strategy.

The process of short selling has four main steps. First, you open a position by borrowing securities from a broker. Second, you sell those securities on the market (requiring a margin account and paying interest). Third, you wait for the price to decrease and buy back the securities at a lower price. Finally, you return the securities to the lender and profit from the price difference. The entire process can take a few minutes or several weeks depending on your strategy.

One important thing to know: in Vietnam, direct short selling of stocks is not yet permitted. However, you can perform indirect short selling through Contracts for Difference (CFDs). CFDs are an agreement between you and the broker to exchange the price difference of an asset without actually owning it. With CFDs, you can choose a short position to profit from a declining market, or a long position for an increasing market.

For example, consider the S&P 500 index. If you predict it will decrease in the next 15 minutes, you can open a short position of 1 lot with a 5% margin. At the current price of $1,777, the required capital is about $88.86. If after 15 minutes the price drops to $1,690, you will make a profit of $87.1, which is a 98% return on your initial investment. That’s the power of leverage in trading.

Similarly, you can short gold or any other asset via CFDs. For instance, if gold is currently at 45 million VND per tael and you expect it to fall, you open a short position for 100 taels. A week later, if the price drops to 40 million, you close the contract and earn 500 million VND in profit. Conversely, if the price rises to 50 million, you will lose 500 million VND.

Now, what is short selling and why does it have both advantages and disadvantages? The clear advantage is that you have the opportunity to profit not only from rising markets but also from falling markets. With leverage, you can achieve large profits with a small initial capital. Additionally, thanks to technological advancements, you can easily perform short selling across thousands of markets without needing to borrow directly as in traditional methods.

But the disadvantages are also significant. Short selling is a high-risk strategy. Theoretically, the asset price can increase infinitely, while it can only decrease to zero. This means your maximum profit is limited (100% if the price drops to zero), but your potential loss can be unlimited. Moreover, if you choose the wrong timing, you might face a margin call forcing you to close your position while the price moves against you. Historically, markets tend to trend upward over the long term, so short selling is not typically a long-term strategy.

So, should you short sell? If you are a beginner trader, I advise caution. What is short selling that it requires deep knowledge, practical experience, and strict trading discipline. You need to understand the risks thoroughly, know how to manage your capital, and have a specific plan before opening a position. Experienced traders often use short selling both for speculation to make profits and for hedging their investment portfolios.

In fact, short selling provides liquidity to the market and helps prevent unreasonable price increases of poor-quality stocks. However, it is not suitable for everyone. Make sure you have enough knowledge and are ready to accept risks before stepping into the world of short selling.