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 [[borrow]]s 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]].  


For example, if an investor believes stock x is overpriced and will fall, he might want to sell short 100 shares of x.  His broker will borrow the shares from someone who owns them with the promise that the investor will return them later. The investor immediately sells the borrowed shares at the current market price. If the price drops, he "[[cover]]s" the short position by buying back the shares, and his broker returns them to the lender.  
For example, if an investor believes stock x is overpriced and will fall, he might want to sell short 100 shares of x.  His broker will borrow the shares from someone who owns them with the promise that the investor will return them later. The investor immediately sells the borrowed shares at the current market price. If the price drops, he "[[cover]]s" the short position by buying back the shares, and his broker returns them to the lender.  
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