Example: Firm buys 5 million shares of company X stock. OTHER than the stock going up after, is there a way for them to profit from buying stock of company X? I see this a lot lately and it seems the stock always goes down? Ty
In: Economics
Yes, there are actually ways to make money off of stocks going down. I’ll try to explain a bit, but a subreddit dedicated to investing would probably have some more info.
The simplest concept, but riskiest, is short selling. This would probably not be done by those large companies. To short sell, you borrow a stock from someone, and then sell it. So you get, let’s say, $100. You think the stock is going to drop. And if you’re correct it does. Then you buy it again, for $80, and give it back. You keep that $20 difference. However, you must return the stock. If that stock somehow shot up to $1,000, you would need to pay it. That’s why it’s risky.
After thinking about it, I don’t feel like I can explain the other ways well enough, but I can tell you their names so you could look it up. The category as a whole is called options trading and can be done whether you think the stock is going up or down. I believe a put is when you think it’s going up, and a call is when you think it’s going down. The very basic concept is that you are buying the right to purchase stock at a certain price, as long as some conditions are met. I’ll leave it at that though, since I am not entirely sure what advantage you gain by this.
Dividends if the company is turning a profit.
And trusting that the market goes up again so you can also sell shares if needed.
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