Short Selling Stocks

A short seller usually borrows through a broker, who is usually holding the securities for another investor who owns the securities; the broker himself never purchases the securities to lend to the short seller.[1] The lender does not lose the right to sell the securities while they have been lent, as the broker will usually hold a immense pool of such securities for a variety of investors which, as such securities are fungible, can in lieu be transferred to any buyer. In most market conditions there is a prepared supply of securities to be borrowed, held by pension funds, mutual funds and other investors.

To profit from a decrease in the cost of a security, a short seller can borrow the security and sell it expecting that it will be cheaper to repurchase in the future. When the seller decides that the time is right (or when the lender recalls the securities), the seller buys equivalent securities and returns them to the lender. The method depends on the fact that the securities (or the other assets being sold short) are fungible; the term "borrowing" is therefore used in the sense of borrowing $10, where a different $10 note can be returned to the lender (as against borrowing a automobile, where the same automobile must be returned). There are also several strategies or Stock Tips suited to beginners, such as diversification, tracking a market, and value investments.

short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the purpose of buying identical assets back at a later date to return to the lender. It is a kind of reverse trading. Arithmetically, it is equivalent to purchasing a "negative" amount of the assets. The short seller hopes to profit from a decline in the cost of the assets between the sale and the repurchase, as the seller will pay less to buy the assets than the seller received on selling them. Conversely, the short seller will incur a loss if the cost of the assets rises. Other costs of shorting may include a fee for borrowing the assets and payment of any dividends paid on the borrowed assets. "Shorting" and "going short" also refer to entering in to any derivative or other contract under which the investor profits from a fall in the worth of an asset.