The traditional approach of investing in the stock market and making a profit out of it is through “buying low and selling high”. It is also known as a long position. This approach is adopted by investors in a bullish market when the prices of the stocks are expected to rise.
A bear market is typically described as a downward market. A bear market occurs when the number of sellers outweighs the number of buyers, resulting in a pessimistic market sentiment. Investors can earn profit through short selling for making money in Bear Market.
Short sellers are expecting that the stock they are short selling will drop in price. The short seller buys it back at a lower price and returns it to the lender if the stock does drop after selling. Short sellers earn profit from the difference between the selling price and the buy price.
A trader purchases shares at a specific price and expects them to rise in the future in the conventional trading approach. Hence, even if the share prices fall a trader only stands to lose to the extent of their investment, thus limited risk.
If share price surges in the case of short-selling stocks, it can skyrocket infinitely. Hence, it exposes a trader to unlimited risk.
So, the Risk of losses on the short sale is theoretically infinite. Short selling should be used by experienced traders who understand the dangers of investing in the Stock market. Buying stocks is less risky than short-selling for investors with a long-term investment horizon.
These are 5 ways to earn profits even during the bearish phase of the stock market:
1. Good stocks tend to recover quickly and get back on the growth track. Investors should keep their purchase of bad stocks at a minimum as their price keeps falling when bad stocks decline.
2. A rating of ‘AAA’ signifies the highest level of creditworthiness. Ratings of ‘AA’ and ‘A’ signify ‘investment grade’. Bonds with lower ratings should be avoided in a bear market.
3. A varied portfolio helps you hedge against risk. Some stocks can help you earn profits if some set of stocks performs poorly.
4. The margin facility can be a powerful tool to acquire stocks that pay dividends in a bear market.
5. Falling market is a great time to earn profit from call options. Investors could also write put options when the market plunges. They can buy those stocks later at a much cheaper rate.
6. Investors can try short positions for investing in the Stock market. This is a good strategy for investing in the Bear market. So, you borrow shares and then sell them in anticipation of a fall in stock prices in the near future.
Investors should use the right trading tools before investing in the stock market. They should do their research before investing in a bear market. This will help investors to make a thorough assessment ahead of the trade. Investors should have the patience to earn profit in a falling Stock market. They should keep monitoring the share market on a regular basis.
In the video, we have discussed ‘How to earn profit in a falling Stock Market’. We have discussed the Bear Markets in detail and how the economy gives signals to identify the Bear markets.
We have discussed 3 concepts that will help you to earn huge profits in the falling stock market. You will get to know every opportunity to earn profit in a falling Stock market in this video.