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Thread: I don't really understand "selling short"

  1. Default I don't really understand "selling short"

    So what I have accumulated in knowledge so far is that to sell short means that you sell and then buy it back on the dip...but how does that have significance in say the sell short button of your broker? Do you not get charged the fees on the 2nd go around or something?

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    Short selling is when you have your broker borrow stock, sell it, and deposit the funds into your account. You are betting on the price of that stock to fall afterwards. You then buy the same stock at a much lower price, pay back your broker, and pocket the difference. Or you get screwed if the stock rice go higher, and you have to lay o ut your own money to cover the purcase.

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    What happened Clavo? Did this market slide take out your portfolio?

    I'm not sure, that may be broker specific, but what you need in order to short is a margin account or essentialy a credit with your broker. So, I guess theoretically if you had good credit with your broker they'd let you short with no money in your acount.

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    1) All you do is put in the number of shares you want to sell (you don't own any first).

    You actually are borrowing shares from your broker and selling them to someone that wants them at a rediculous price. I see a negative # of shares in my account because I now owe them back to my broker.

    2) Then when the price goes down, you buy that same number of shares back. You gain from the % drop minus commission.

    You actually buy them to pay your broker back for borrowing the shares. Then your negative # of shares go back to 0.

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    haha, well all my money is tied up in mutual funds and HOM and SU and before i wanted to short things but had no money, and soon when these interest rates go up, id like to take advantage.
    No, I also have to have that money in my account or margin. After you short, you get a debit to your broker for the amount you owe back. This debit goes down as the shares drop in value that you short. When you close your short position, you hope you can keep some of this money; i.e., the loss in value of the shares.

    My broker gives me a margin to work with which is equal to the money in my account. It will not let me use more than my margin. If I have a bad day and have borrowed more than what I have in my account, my broker will close some shares out before the end of the day.


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