Specifically, how does one “borrow” or “sell” stock they don’t actually own?
In: 8
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.
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