How short selling works and how it affects the stock market | Just the FAQs 1

How short selling works and how it affects the stock market | Just the FAQs

 

First GameStop, then silver. Reddit users are putting hedge funds to the test, one short squeeze at a time. Here's what you need to know.

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Your goal as an investor should be to make money, and you can do that in a number of ways. You can buy stocks that pay dividends and pocket that cash, or you can sell stocks at a share price that's higher than what you paid and bank the difference.

When you sell stocks at a profit, the result is capital gains — and the IRS is definitely going to want a piece of those. As such, while sitting on a massive gain is a good problem to have in theory, because it means you've made a killing on a stock you owned, it could also pose a problem from a tax perspective.

Thankfully, there's an effective solution to this problem: a tactic known as tax loss harvesting. And if you use it strategically, your enormous gain may not be such an issue after all.

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