How securities are traded - Short sales
3 important questions on How securities are traded - Short sales
What is a short sale?
A short sale allows investors to profit from a decline in a security’s price. An investor borrows a share of stock from a broker and sells it. Later, the short-seller must purchase a share of the same stock in order to replace the share that was borrowed. This is called covering the short position.
What is a naked short sale?
Naked Short-selling is a variant on conventional short-selling. In a naked short, a trader sells shares that have not yet been borrowed, assuming that the shares can be acquired in time to meet any delivery deadline. While naked short-selling is prohibited, enforcement has been spotty, as many firms have engaged in it based on their “reason- able belief” that they will be able to acquire the stock by the time delivery is required.
What is the short sale margin formula?
margin = equity / value of shares owed
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