Shorting stocks is not a strategy used often by retail investors because of the difficulty in timing the market and the greater amount of risk and capital involved.
Mastering this strategy is difficult, because the markets tend to move higher the majority of the time, said Ron McCoy a portfolio manager with Covestor, the online investing company, and founder of Freedom Capital Advisors in Winter Garden, Fla.
"Selling short is one of the riskiest ventures to undertake and few people have been able to successfully master this method of investing," he said. "Sure, bear markets and corrections are going to come, but trying to time that is more than half the battle."
There are many execution and risk issues for shorting stocks, especially for retail investors because some traders may not be able to meet their margin calls if the stock rises, said K.C. Ma, director of the Roland George investments program at Stetson University in Deland, Fla.
"You need to have enough equity to be able to stay in the game," he said. "Even though you have the ability to meet the margin calls, the shareholder who loaned you the stock may like to take the profit on a rising stock by asking you to return the stock. This call effectively terminates your investment. This is the second call you don't want to receive as a short seller."
Instead of trying to determine a time when a stock or market is going to decline, investors can buy and sell options that are less risky.