Selling Short: A Technique for Profiting When Stocks Fall?
The bear market has focused investors into alternate strategies for equity investing. The predominant hedge strategy is selling short. Here are the mechanics, how to execute a short-sale, and the risks of selling short. An investor who sells short is betting the stock will decline. The investor is selling the stock at the current price, expecting to profit by repurchasing the stock at a lower price. In order to sell a stock before buying it the investor must first borrow the stock. When the stock is repurchased in the future it is given to the stock-lender to satisfy the loan. The ability of the investor to make money depends on the repurchase price of the stock. The goal is unchanged from standard investing i.e. Sell High, Buy Low. It is just the order that has changed. When a broker receives a clients short-sales order, he first checks to make sure the brokerage firm has stock available to borrow. Stocks become available for lending when investors keep them in-house and sign a custom
