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In finance, short selling is selling something that one does not (yet) own. Finance addresses the ways in which individuals, business entities and other organizations allocate and use monetary resources over time. ...
Stocks Typically, this refers to stock shares. In a sense, short selling stocks means to own a negative amount of stocks. See stock (disambiguation) for other meanings of the term stock A stock, also referred to as a share, is commonly a share of ownership in a corporation. ...
See stock (disambiguation) for other meanings of the word stock Public Stocks The stocks are a device used for public humiliation, punishment, and torture. ...
Negative has meaning in several contexts: Negative and non-negative numbers Negative (photography) Negative (music) For other contexts see positive. This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ...
The hope is that the price falls and it is possible to buy at a lower price whatever was sold, deliver it to the buyer at the previous higher price and make a profit. This is termed 'covering your position'. In particular, day traders will often use short selling to allow them to profit on all predicted market movements, rather than only market increases. For people whose family name is Price see Price (disambiguation). ...
Profit is defined as the residual value gained from business operations. ...
Day trading most commonly refers to the practise of either buying and then selling or selling and then buying a stock within the same day. ...
In order to sell stocks short, one must borrow it from someone else, usually a stockbroker. Often, these stocks will be owned by the stockbroker's other customers, who may not know that their stocks have been borrowed. It should however be noted that most stockbrokers are insured against customers' shares being lost in this fashion. A stock broker or stockbroker or stock brokerage is someone or a firm who performs transactions in financial instruments on a stock market as an agent of his/her/its clients who are unable or unwilling to trade for themselves. ...
The lender will charge a fee for this service of course. Generally this is in the form of "margin interest" which the short seller pays continuously to the stockbroker until he has covered his position. This decreases the profit potential of short selling, especially if the stock is held short for a long time. In finance, interest has three general definitions. ...
Futures contracts When dealing with futures contracts, being "short" means having the obligation to deliver (or buy back) something that was already sold. This is often an instrument used by producers or farmers to fix the price of goods they have yet to mine or grow. A futures contract is a form of forward contract, a contract to buy or sell an asset of any kind at a pre-agreed future point in time, that has been standardised for a wide range of uses. ...
Currency To sell currencies short you borrow a currency and buy another currency with it. When the exchange rate has changed you buy the first currency again, this time you get more of it, and pay back the loan. Since you got more money than you had borrowed initially, you earn money.
History It is possible that the term "short" derives from the name of a notorious stock broker of the 1920s that used the practice to defraud his customers (disputed — see talk page). It is more commonly understood that the term "short" is used because the short seller is in a deficit position with his brokerage house. That is, he owes his broker and must repay the shortage when he covers his position. Technically, the broker usually in turn has borrowed the shares from some other investor who is holding his shares long; the broker itself seldom actually purchases the shares to loan to the short seller. Centuries: 19th century - 20th century - 21st century Decades: 1870s 1880s 1890s 1900s 1910s - 1920s - 1930s 1940s 1950s 1960s 1970s Years: 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 Referred to as the Roaring 20s. ...
This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ...
Risk It is important to note that buying shares and then selling them (called "going long") has a very different risk profile from selling short. In the former case, losses are limited (the price can only go down to zero) but gains are unlimited (there is no limit on how high the price can go). In short selling, this is reversed, meaning the possible gains are limited (the stock can only go down to a price of zero), and the seller can lose more than the original value of the share, with no upper limit. For this reason, short selling is usually used as part of a hedge. The word long has several meanings: In computing, long is often used as a short-hand description for the long integer datatype, particularly when used to declare a variable of this type (for example in the C programming language). ...
This article is about the concept of risk. ...
Electronics In electronics, gain is usually taken to meaning the ratio of the signal output of a system to the signal input of the system. ...
There are other meanings of the word hedge. ...
Many short sellers place a "stop loss order" with their stockbroker after selling a stock short. This is an order to the brokerage to cover the position if the price of the stock should rise to a certain level, in order to limit the loss and avoid the problem of unlimited liability described above. In some cases, if the stock's price skyrockets, the stockbroker may decide to cover the short seller's position immediately and without his consent, in order to guarantee that the short seller will be able to make good on his debt of shares.
Short selling is sometimes referred to as a "negative income investment strategy" because there is no potential for dividend income or interest income. One's return is strictly from capital gains.
Short sellers must be aware of the potential for a short squeeze. This is a sharp uptick in the price of a stock, caused by large numbers of short sellers covering their positions on that stock. This can occur if the price has risen to a point where these people simply decide to cut their losses and get out. (This may occur in an automated way if the short sellers had previously placed stop-loss orders with their brokers to prepare for this eventuality.) Since covering their positions involves buying shares, the short squeeze causes an ever further rise in the stock's price, which in turn may trigger additional covering. In finance, a short squeeze is a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock. ...
On occasion, a short squeeze is deliberately induced. This can happen when a large investor (a company or a wealthy individual) notices many short positions, and buys many shares, with the intent of selling them to the short sellers who will be paniced by the initial uptick.
Short sellers who are borrowing money from their brokerage house also must be aware of the margin call, a demand for additional funds from their broker, because of, in the case of shorting, a rise in the price of the security being shorted. A margin call is the demand, in a margin account, for additional funds, additional money or securities, to be deposited into the account. ...
Short sellers must also be aware of the potential for liquidity squeezes. This occurs when a lack of potential (long) buyers, or an excess of coverers, makes it difficult to cover the short sellers' position. Because of this, most short sellers restrict their activities to heavily traded stocks, and they keep an eye on the "short interest" levels of their short investments. Short interest is defined as the total number of shares that have been sold short, but not yet covered.
Strategies One variant of selling short involves a long position. "Selling short against the box" is holding a long position on which one enters a short sell order. The term box alludes to the days when a safe deposit box was used to store (long) shares. The purpose of this technique is to lock in paper profits on the long position without having to sell that position. Whether prices increase or decrease, the short position balances the long position and the profits are locked in (less brokerage fees).
Opinions Short sellers have a negative reputation to some. Businesses hate short sellers who target them, as the short selling drives down the price of their stock and puts the short sellers in a position where they benefit from the business's misfortune, which seems like a ripe opportunity for conspiracies against the business, especially anonymous rumors. Others portray short sellers as ghoulish characters who hope for catastrophes. There was a practice in the late 19th century of borrowing people's shares, selling them, then floating horrible rumors in the media about the companies in question, driving the stock price down, then purchasing the shares back at the much lower price. Even today, short sellers have been known to create bear raids by selling blocks of shares that they do not own. To mitigate this problem, the SEC (Securities and Exchange Commission) has instituted an uptick rule. This states that a short seller cannot cover his/her position unless the last market price of the stock was up from the previous price. Alternate uses: See Conspiracy (disambiguation) Conspiracy, in common usage, is the act of working in secret to obtain some goal, usually understood with negative connotations. ...
Alternative meaning: Nineteenth Century (periodical) (18th century — 19th century — 20th century — more centuries) As a means of recording the passage of time, the 19th century was that century which lasted from 1801-1900 in the sense of the Gregorian calendar. ...
However, on 2003-10-29 the SEC announced (http://www.sec.gov/rules/other/34-50104.htm) a one year pilot program to suspend the uptick rule for 1000 listed and NASDAQ traded stocks selected from the 3000 most liquid securities. 2003 is a common year starting on Wednesday of the Gregorian calendar, and also: The International Year of Freshwater The European Disability Year Events January January 1 - Luíz Inácio Lula Da Silva becomes the 37th President of Brazil. ...
October 29 is the 302nd day of the year (303rd in leap years) in the Gregorian Calendar, with 63 days remaining. ...
SEC is a TLA which can refer to: In general context, an abbreviation for second. ...
NASDAQ, originally an acronym for National Association of Securities Dealers Automated Quotations, is a stock exchange run by the National Association of Securities Dealers. ...
Advocates of short sellers have stated that their scrutiny of companies' finances has led to the discovery of instances of fraud which were glossed over or ignored by investors who had held the companies' stock long. Some hedge funds and short sellers claimed that the accounting of Enron and Tyco was suspicious, months before their respective financial scandals manifested. The term hedge fund dates back to the first such fund founded by Alfred Winslow Jones in 1949. ...
Enron Corporation Enron Corporation is an energy trading and communications company based in Houston, Texas that employed around 21,000 people in mid-2001 (before bankruptcy). ...
Tyco International Ltd. ...
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