Make money when the stock market goes down

Ever wonder how people make money in the market when the stock market goes down?

One way to do this is to execute a short sale. A short sale is just the opposite of buying a stock. You are speculating the stock is going to go down rather than up.

Let's say you are looking at ABC stock and it is trading at $50 a share. Maybe it has had a nice run up or you think the stock price is too high. To take advantage of the decline in share price, you would execute a short sale. If the price declined to $45 a share, you would profit $5 per share (less commissions).

In order to sell a stock short, you first must open a brokerage account and be approved for a margin account. Once you are approved you would place an order to "sell short". The broker will then borrow the shares for you to sell in the open market. The selling proceeds go to your account.

When the stock declines (hopefully), you purchase the shares back from the market and return the borrowed shares to your broker. You enter an order to "buy to cover" your short sale to execute this transaction. The difference between the selling proceeds and what you bought it back for will be your profit or loss.

That is just one of many ways to profit from a declining stock market.