Short Selling

RECENT NEWS
Dual Income No Kids  Nov 24  Comment 
On September 19th, 2008 the Securities and Exchange Commission halted the short selling of financial stocks in order "to protect the integrity and quality of the securities market and strengthen investor confidence." The U.K.'s Financial...
Bloomberg  Nov 19  Comment 
(Update1) Prime Minister Gordon Brown’s government proposed new powers to suspend “abusive” short selling deemed to be endangering the financial system.
Mondo Visione  Nov 18  Comment 
Please find below the Top 20 Largest Consolidated Short Position Report Highlights. The report is produced twice monthly, effective the 15th and the end of each month. The report below covers the 2-week period ending November 15, 2009.
  Nov 13  Comment 
The Direxion 10-Year Treasury Note 3X Bear ETF (TYO) is a leveraged ETF which moves in tandem with the yield on the 10-Yr Treasury Note, opposite the price, and with three times leverage on a daily basis. Like many leveraged and inverse ETFs this...
Mondo Visione  Nov 11  Comment 
The Stock Exchange of Hong Kong Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), announces that with effect from 18 November 2009 (Wednesday), Wynn Macau, Limited (Stock code:1128) will be admitted to the list...
Mondo Visione  Nov 4  Comment 
Please find below the Top 20 Largest Consolidated Short Position Report Highlights. The report is produced twice monthly, effective the 15th and the end of each month. The report below covers the 2-week period ending October 31, 2009.
Mondo Visione  Oct 29  Comment 
The Stock Exchange of Hong Kong Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), announces that with effect from 5 November 2009 (Thursday), 58 additional securities will be eligible for short selling and...
Charts and Coffee Blog  Oct 27  Comment 
UDN appears to have broken its trendline. Both a log and linear chart are provided below. Once UDN didn’t bounce this morning, I closed my position that I opened yesterday. I’m long right now anyway so I can do without the dollar exposure...
Canadian Business Blog  Oct 23  Comment 
An email from David K. of Toronto nudges me to post on a point I had thought to include in yesterday’s column on short selling leveraged ETFs – but left on the cutting room floor. It concerns the strategy of shorting leveraged ETFs and the...
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Short selling is a method of profitting when stock prices fall.

Short selling and selling short are synonymous terms. The opposite transaction would be "buying long".

If you are "short" a stock, it means that you expect the price to go down. Short selling as a strategy has several inherent risks:

  1. In the long term, stock prices have generally gone up. So taking a short position is either a short-term bet against the market as a whole, or a bet against very specific companies.
  2. Margin interest. Because the first part of short selling is to sell the stock, it begs the question, "how can you sell what you don't own?". Simple, you borrow it (from your broker in this case). And because you are borrowing the stock and your broker is charging you interest until you return the shares, unless the stock is going down, margin interest charges will start gnawing down your cash. This aspect is another reason that selling short is usually done in a shorter term time frame. The closing transaction is "buy to cover."
  3. Unlimited liability. When you "buy long", your liability is capped. You can, at most, lose the value of your invesment (IE, if the stock costs $60 you can lose no more than $60). However, if you were to sell short and the stock price rose, there's no limit to the amount of money you could lose (as there is no theoretical upper limit on the stock price).

BEWARE: not all short or selling transactions are in anticipation of a downward move. If you short/sell a put option contract, that is typically a bullish to neutral prediction.

Short selling is controversial and is the subject of SEC proposals to restrict its use. A Wiki with links to the proposals and an opportunity to comment on them appears here.

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