How does stock shorting work?

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Specifically, how does one “borrow” or “sell” stock they don’t actually own?

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6 Answers

Anonymous 0 Comments

Typically when you’re borrowing the stock, you’re signing a contract of sorts that says you will pay a certain fee up front plus interest on the value of the stock until you return it/the contract expires. The person lending the stock typically comes out ahead regardless since they get some money and the guarantee that their stock will be returned.

Anonymous 0 Comments

Step 1: You borrow a stock from broker.

Step 2: while borrowing, you and broker agree on contract

Step 3: contract states you are borrowing stock from broker to sell it and then purchases the same stock from open market.

Step 4: After purchasing it back you are returning that stock back to broker on or before specific date and time.

Why short it?
If you feel that stock will be valued less in next 4 hours then you short sell it at $100, and if its market value goes down in 4 hours, let’s say $90. Then you purchase it back at $90.

$10 is your gross profit.

Anonymous 0 Comments

The typical investor doesn’t do the borrowing directly. A typical investor opens an account with a brokerage and, if qualified, are given stock shorting privileges. The investor enters a request to short the stock and the brokerage does the rest. The broker borrows the shares on behalf of the investor and sells the stock. In order to do a short sale, the investor must have enough funds in their account (by SEC regulations)

The investor pays a fee for this. When they close the short position, their gain or loss is recorded. If the stock appreciates a lot during the period of the short, ie the short begins to lose a lot of money, the investor will likely receive a margin call and be required to top up their brokerage account.

To a typical investor, this operates as the “reverse” of buying a share ie it is a contract that makes more gains the more a share price falls. The mechanics are all done by the broker.

Anonymous 0 Comments

The long and short of it is accumulating profit regardless of the harm caused to the corporation and other stock holders. On the surface this seems unethical if not immoral. Yet this is legal.
Similarly those who take over a company, then gut it and then mark up product prices exponentially. Think of insulin. Again all legal.

Anonymous 0 Comments

It’s not that different from borrowing money to buy a house or car…. Banks/brokerage lend out other customers’ money/shares. You repay the loan or cover the short and the money or shares are returned to customers. It’s done on an abstract basis, ie. if you own shares or have money in a bank, they’re not going to tell you that you can’t sell your shares or pull out money because it’s being lent to another customer.

Anonymous 0 Comments

I borrow your rare Pokemon card it’s worth about $1000. I pay you $30 a week to borrow it.

I immediately sell it on eBay. For $980.

I now hope to be able to find this card on eBay again for less than $980.

Let’s say a big collector decided to sell their entire collection. This tanks the price of Pokemon cards in general. I nab the same card you had for $700.

So I return the card to you. Pay you $30 for the week I borrowed it as well so I made $250.

That’s how shorts win. Let’s see how they lose

Lets say Pokemon cards are hot again.

Now the card you had is worth $2000 up from $1000 a week ago. You start getting mad that I haven’t returned it. Even though I paid you $30. But that became $60 $90$ $120 you want the card back because you know the value skyrocketed.

Finally after $150 in borrow fees you get pissed and demand the card back..I am now forced to buy it immediately and that means I’m buying it for the $2000 market price.