WBTM on Nostr: #ShortSelling and why doing it with #Bitcoin is too risky Imagine,John, who believes ...

#ShortSelling and why doing it with #Bitcoin is too risky

Imagine,John, who believes that a trendy new restaurant's popularity is overhyped, and its stock will decline. In the world of investing, John decides to short sell the restaurant's stock. Here's how short selling works:

John borrows 10 shares of the restaurant's stock from his broker and immediately sells them at the current market price, let's say $100 per share. Now, John has $1,000 from the sale, but he owes his broker 10 shares of the restaurant's stock. His hope is that the stock price will indeed fall.

If the stock price drops to $80 per share, John can buy back the 10 shares for $800, returning them to his broker. In this scenario, he initially gained $1,000 from the sale and only spent $800 to buy back the shares, resulting in a $200 profit.

Now, let's consider short selling #Bitcoin. While the basic principle is the same, short selling #Bitcoin is often deemed too risky due to its volatile nature. Unlike stocks, #Bitcoin can experience extreme price fluctuations in a short period. If you short sell Bitcoin at $50,000, for example, and the price surges to $100,000, your losses could be mmm substantial.

#Bitcoin's decentralized and speculative nature makes it unpredictable, and timing the market accurately is challenging. The potential for unlimited losses in a short position makes short selling #Bitcoin riskier compared to traditional assets with more stable price movements. Investors should exercise caution and thoroughly understand the risks involved before engaging in short selling, especially with highly volatile assets like #Bitcoin.

The best you can do is read about it, understand why and the hodl… forever until you need to sell it due to an emergency 🚨. Buying a lambo is not 😏

https://youtu.be/V5Mhj6tlr9A?si=jWnsskdDnX9Tn1oD