Re:Some of the world's biggest economies are on the brink of...
by abrichr on Sunday February 23, 2020 @12:16PM
(#22398032)
The standard technique is known as a "short sale", or "shorting" [1]:
You borrow a security at price $X, and sell it immediately. The price declines to $X - $Y. You buy it for $X - $Y, and return the security to the original owner. You just made $Y.
So if you think there will be a recession, all you need to do is short the assets that will experience a decline in value as a result. The trick, as mentioned elsewhere in this thread, is knowing exactly when that will happen. If the price goes up instead of down in the time period you agreed upon with the lender, you lose $Y.
Another technique mentioned elsewhere is via options. You can buy the right (or "option") to sell a security at a later date at a fixed price. This is known as a "put" option [2].
You borrow a security at price $X, and sell it immediately. The price declines to $X - $Y. You buy it for $X - $Y, and return the security to the original owner. You just made $Y.
So if you think there will be a recession, all you need to do is short the assets that will experience a decline in value as a result. The trick, as mentioned elsewhere in this thread, is knowing exactly when that will happen. If the price goes up instead of down in the time period you agreed upon with the lender, you lose $Y.
Another technique mentioned elsewhere is via options. You can buy the right (or "option") to sell a security at a later date at a fixed price. This is known as a "put" option [2].
[1] https://www.investopedia.com/terms/s/shortselling.asp
[2] https://www.investopedia.com/terms/p/putoption.asp