4 ms·

Does this quote apply more to going short? I interpret it as a general 'warning' for any market speculation.

• nfriedly 7y ago
  Yea, but it applies to shorting more than most other forms of speculation. When you buy a stock because you think it's going to go up, the maximum amount of money you could loose for being wrong is whatever you spent on buying it. When you sell/don't buy a stock because you think it's going to go down, you're only loosing potential upside, there is no downside. In other words, there's no way for it to cause you to have less money than you have today. But, when you short a stock, your potential downside is uncapped. That stock can keep going up to infinity, and as it does, your losses go up towards infinity.