What is a short sale?

[jellyman]

I have been trying to understand what a short sale is. Can anyone help explain this to me? Thanks!

[tech0925]

Short selling is basically when you sell a stock that you do not own. The stock will come from the brokerage's own inventory, from another one of the firm's customers, or from another brokerage firm. The shares are sold and the proceeds are credited to your account. Sooner or later, you must "close" the short by buying back the same number of shares (called covering) and returning them to your broker. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. If the price of the stock rises, you have to buy it back at the higher price, and you lose money.

Hope this helps. Let me know if you want me to explain this more.

[donide]

Thank you for this info. i have been really confused about short seling for a long time. This helps to clear it up for me.

[thedude]

That sounds like pretty handy method. Is there any time limit until you have to close those type of transactions or is that just depend on where you got the stocks from?

[88jrod]

That sounds like pretty handy method. Is there any time limit until you have to close those type of transactions or is that just depend on where you got the stocks from?

A Sell Short Limit Order is an order to sell short a specified number of shares of a stock at a designated price or higher, at a price that is above the current market price. The limit price that you specify is the minimum price you are willing to accept to sell short.

Once a stock's price trades at or above the price you have specified, you will enter a new Short position at your limit price or higher IF the stock's price continues to trade at or above your specified price long enough for your order to be filled.

Example: Suppose you want to sell short 100 shares of Cisco Systems (CSCO), and it is currently trading at $25 per share. You would like to sell short if the stock's price reaches $27 per share, as you feel the stock's price is not going to go much higher than $27 and will likely fall from there.

You place a Sell Short Limit Order @ $27 on 100 shares of CSCO. Now suppose the price trades up to $27. As long as the price remains above $27 per share, you would then enter a new short position at the next best available price that is $27 per share or higher.

The main benefit of a Sell Short Limit Order is that you may be able to enter a new short trade at or around a specific price that is above the current market price IF the stock's price raises to that price.

Sell Short Limit Orders are used best if you believe a stock's price will rise, but only up to a certain price range (resistance?) and will then fall in price from that point, allowing you to profit from that move lower.

But, if the stock's price reaches your limit price, but then changes direction to the downside before your order is filled, you will NOT be entered into a new short position. Also, if the price never reaches your limit price, you again will not be entered into a new short position.

Hope this helps

[Davidbull]

As per my thinking the short selling is basically when you sell shares which is your own. Stock from the brokerage's own inventory from one of the customers of another company or from other brokerage firms.