Shorting a Stock

May 11, 2010  //  Posted by: qwcdirect  //  Category: Finance, Investments

To short a stock means that you borrow the stock from your stockbroker and then selling it too a third party. The main reason why you would want to do this is to buy back the stocks at a cheaper price and then returning the shares to the broker while leaving some amount in your ban account as a profit. A short seller may not be the owner of the stocks before they sell but what they do is to borrow an investor who owns it already. At a certain time, the short seller may buy back the stocks and return the stocks in order to close out on the loan.

In order for you to sell short, you will be required that you open a margin account. This is mostly allowed by online brokers if you qualify according to the rules and regulations. Even during a bear market, it might not be easy to short stock but it will require that you understand the market properly.

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