Difference between revisions of "Short sale"

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A short sale occurs when someone borrows a [[security]] (or a [[futures contract]]) from a [[broker]] and [[sell]]s it, with the understanding that he or she will later buy it back (hopefully at a lower price) and return it to the [[broker]]. Investors use short selling (or "selling short") to try to [[profit]] from the falling price of a [[stock]].  
A short sale occurs when someone borrows a [[security]] (or a [[futures contract]]) from a [[broker]] and [[sell]]s it, with the understanding that he or she will later buy it back (hopefully at a lower price) and return it to the [[broker]]. Investors use short selling (or "selling short") to try to [[profit]] from the falling price of a [[stock]].  
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The profit is the difference between the price at which the stock was sold and the cost to buy it back, minus commissions and expenses for borrowing the stock. If the price goes up, however, the potential for [[loss]] is unlimited, because at some point the investor must replace the 100 shares of x he sold.  
The profit is the difference between the price at which the stock was sold and the cost to buy it back, minus commissions and expenses for borrowing the stock. If the price goes up, however, the potential for [[loss]] is unlimited, because at some point the investor must replace the 100 shares of x he sold.  


Short sellers are in the minority, making up on average less than 5 percent of positions on the [[New York Stock Exchange]].<ref>{{cite web|url=http://www.economist.com/displaystory.cfm?story_id=11591349|name="Short Selling: Nasty, Brutish and Short"|org=The Economist|date=July 31, 2008}}</ref>  
Short sellers are in the minority, making up on average less than 5 percent of positions on the [[New York Stock Exchange]].<ref>{{cite web|url=http://www.fsa.gov.uk/pages/Library/Communication/PR/2008/102.shtml|name="Short Selling: Nasty, Brutish and Short"|org=The Economist|date=July 31, 2008}}</ref>


In September of 2008, the Board of the [[Financial Services Authority]] (FSA) announced it would introduce new provisions to the Code of Market Conduct to prohibit the active creation or increase of net [[short position]]s in publicly quoted financial companies. The goal was to protect the fundamental integrity and quality of markets during disorderly market conditions.  
On September 18, 2008, the board of the [[Financial Services Authority]] (FSA) announced it would introduce new provisions to its Code of Market Conduct to prohibit the active creation or increase of net [[short position]]s in publicly quoted financial companies. The goal was to protect the fundamental integrity and quality of markets during disorderly market conditions.<ref>{{cite web|url=http://www.economist.com/displaystory.cfm?story_id=11591349|name=FSA Statement on Short Positions in Financial Stocks|org=FSA|date=September 19, 2008}}</ref> 


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== References ==
== References ==
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