Short Selling Stocks – A Quick Guide
Briefly, the short sale occurs when the seller of a security does not own what is being sold but promises to deliver it anyway. When you enter into the short sale of a stock, it must be loaned to you by a broker. The actual stock may be obtained from the brokerage firm’s inventory, from another brokerage firm, or from another customer at your brokerage.
When the sale transaction is consummated, the proceeds are deposited into your account. Soon or later, you will be required to “close” the short. Closing the short is accomplished by purchasing the identical number of shares and returning them to whomever lent them to you in the first place. At the time of the purchase closing the short, if the price of the shares is less than when you sold it, you have a profit. Short sellers have a loss when the subsequent price has risen above where it was when the stock was shorted.
