Have you ever heard the term “shorting stock.” It means to sell a stock that you are “shorthanded” on. In other words, you don’t have the stock you’re trying to sell. This may seem like a shady deal but it’s not. If you short (or sell) stock you don’t own, you are promising to provide that stock at a later date. It’s almost like pre-selling a product. You don’t have it yet, but you go ahead and let people buy it from you and give it to them when the product comes in. Here’s the catch, you now OWE them that product! With stocks, the same is true. If you sell someone some stock, you will likely be require to give them the stock in the near future.
Imagine a guy named Bob sees the market crashing and then he looks at one stock that is usually very expensive. He sees the stock losing value as the whole market crashes. So Bob decides to sell that stock at it’s current price. Then, as the market continues to crash in value, the stock Bob pre-sold becomes cheaper and cheaper to buy. Could he buy it for cheaper than he sold it? In this example, yes he could!
The fact is, some investors do this regularly when the market is crashing. We’ve all heard the phrase “Buy low and sell high.” But many don’t realize that this can be done backwards. investors can sell and THEN buy. This presents a unique opportunity to make money as the stock market crashes. However, there are some pretty big risks involved with shorting stock. In fact, when shorting stock, there is an opportunity to lose an infinite amount of money! So this often scares people away from attempting to trade through the recession. Another way to potentially make money during a recession is by trading options (which you can get a plain explanation of by clicking right here.)