By Vytautas Zilenas
Market boom that preceded the most recent crisis created a lot of opportunities for an average trader to make a lot of money. Lots of people managed to do that in various markets, but they waited for too long or they got into markets too late and when there was a reverse they actually lost everything that they had made and even more. This fact saddened most traders and investors as nobody knows when we are going to have another boom where most money is made. However, I am absolutely sure that this is a flawed understanding and you can make as much money, or even more during crisis than you are able to make during economic boom.
How is that possible? It has been possible for quite a long time, but an average person does not know about this possibility. Everybody knows that if you want to sell a stock, you need to buy it first and only then you will be able to sell it. However, for over a hundred years you have been able to sell without buying first. How do you do that? You simply borrow a stock or any other security from a broker or your dealer and sell it in the market for a profit or a loss. When you close the position you simply return the amount for which you got a stock or a security and take profit or add extra which you lost from an operation.
Some small financial markets do not allow doing that, but you can do it without any problems on all major financial markets now. So, when you see a crash coming, or you know that the market is in a downtrend and is going to be in it for a long time, you should borrow securities for selling. In fact, crisis is much better for trading than a boom is. Why? Because during crisis fear and skepticism rules and securities fall very fast and you can make much bigger money selling during crisis than buying during a market boom.
So, if we talk about period which is better for a trader I would say that crisis is a much better period than a boom, because you can make much bigger money trading when economy is in bad shape than at the time when it is booming. Of course, if we do not talk about traders but people in other professions, then a boom is much better. However, I think that people should familiarize themselves with the financial markets and possibilities how to trade them, because they could profit a lot from the knowledge and who knows, maybe they would change their profession one day.
About the Author
If you are interested in causes and results of market bubbles I would recommend you reading my article about economic bubble.
