How can i make money when the stock market falls?

There are several ways to make money on the internet. Many people only believe that you can make money when the markets rise however nowadays with more financial instruments available you can make money when the market goes down. If you can identify all the places where the markets will rise and fall and set your positions accordingly then you can make a significant amount of money.

Short and Long Positions

A long position is when you are bullish of a stock and think it will rise, you can buy shares in the company of you can buy contracts for differences (CFD’s). When buying a stock outright you pay for the entire amount however when you buy CFD’s you only need to put 10% or less. The main benefit of a CFD is that you can really get high returns because you are controlling 100% of stock with only 10%, the downside is that you can lose more than your initial.

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When you think the market is going rise you can place a long position using CFD’s. When you think the market is going to fall you can place a short position using CFD’s. A Short position is effectively borrowing the stock and then selling it in the hope of buying it back cheaper in the future making money on the difference. If the stock falls then you make money and if it rises you can lose money, with Contracts for Difference you can end up losing more than your initial outlay is the market goes against you.

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If you expect the market to fall in the near future and you do not want to sell all your shares because of all the administrative costs and commission then you can place a short position on a weak stock to hedge or mitigate the risk of falling markets. If you have $100,000 in shares in different companies and expect the markets will go for a correction then selling this amount of shares would incur commission costs.

What you can do instead is place a short position on a really weak stock for about $1000, if you use CFD’s then you only need to pay $100. When the markets fall you will lose out on your shares however you will gain on the weak stock which should fall significantly because it is weak. This is a great way to hedge and make money when the stock market goes down.

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If you don’t have a portfolio and you have reason to believe that the markets will fall then you can place 3 short positions on really weak companies. The reason behind choosing a weak company is that when the markets fall these companies will fall more than stronger companies which will weather the storm.

Make sure you hedge the position with a long position on a Strong company, if the markets do fall then the strong company will not fall that much however if you have made a mistake and the market rises then the weak companies will rise a little and your long position will recoup any loss you are making. This is a great hedging strategy that many people use to avoid massive losses in their portfolio.

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Whatever instruments you decide to use you have to be aware that 90% of the stock market participants lose. If you want to be part of the 10% that win then you have to educate yourself and really use reason instead of emotion to make decisions. Stockcharts.com is a great place to start your research.

Always virtual trade before you start trading for real and always manage your money properly so that you only use what you can afford to lose. With a little education and practice you too can invest in the stock market and make money when the markets go down.