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Business strategies for beating stagflation

If the security falls in price, the investor or trader will purchase the security from the market at the prevailing low price and deposit the security back with the broker. The profit for the investor or trader is the difference between the price at which they would have sold at the initial phase of the trade and the price at which they buy back the security when they close out the trade. A strong warning is in order here: this kind of trading (margin trading and short selling) is strictly for the sophisticated investor or trader.

It should never be attempted by a novice or a person with a low tolerance for risk. These trades involve the use of leverage and the use of margin which means that should the trade go sideways the investor or trader stands to lose much more than they would have invested.

In the example given, should an investor decide to short sell the debt of a certain emerging market economy currency believing that the country is in financial distress and is likely to default on its loans sending the price of its sovereign bonds through the floor, that investor would be in a world of trouble if for some reason the price of the said bonds rallies instead of falling! That investor would be at risk of receiving the dreaded margin call from their broker.