You might’ve heard of the conventional investment expression – buy low and sell high. But do you know what the opposite of that is? It’s “short selling”.
Short selling is an easy to understand concept: investors borrow shares (which they think will drop in price) from their brokers and sell them at their current price. Then when the prices of such shares actually drop, they re-purchase the shares, and repay their broker. The difference in the prices at which they bought and sold the same stock is their net profit.
You’ll find that many retail investors are on the search to buy the most shorted stocks in today’s market scenario. And even though quite a few investors make money through short selling, it’s an investment strategy with substantial risk. The money you may lose through it could be unlimited.
How’s that possible? It’s possible through what’s called the “short squeeze.”
What’s a “Short Squeeze”?
People investing in hedge funds faced losses to the tune of billions recently because of what’s known as the “short squeeze”. Remember we mentioned above that short-sellers bet that a particular stock will go down? Now, what if the stocks, instead of going down, go up? Short-sellers will be left with no option but to re-buy the shares they sold earlier at a much higher price, right?
So when the buying pressure takes precedence over the selling pressure, a short squeeze happens, thereby leading to a big jump in the stock market. And that’s what the condition in today’s stock market is between hedge funds and retail investors.
Read – How old do you have to be to invest in stocks?
Best shorted stocks to consider
Now, you might be curious to know what the best-shorted stocks to buy currently are. Here we have a list:
GameStop Corp.
First up, we have none other than GameStop or GME. In the last week of January 2021, GME stocked over 400% gains. Due to high short-interest, it was the first targeted company of Reddit investors.
AMC Entertainment Inc.
Lately, this company has also been in the spotlight with an increase in the share price of over 469% since January 15, 2021. Its stock is dubbed as a “Wall Street bets stock”.
FuboTV Inc.
While FUBO is excited about its growth over the recent years, some think it’s a money-losing business since it has a streaming subscription as its central service. But let’s not forget that there’s been a huge progression in the way people consume video entertainment.
Read – Social media stocks to buy in February 2021
All in all…
This year, the stock market is going through a lot of volatility. And while no one knows how this will end or what turn it will take, being an active investor you might actually love it! If your investment strategy and risk tolerance are in line with how these stocks are trading, then you shouldn’t be the one watching it from the side-lanes. It all depends on you.
