WhatMoney Please Read

[epiphany]

Hey What....if you have the time and the inclination, can you please explain to me what short selling is? I asked several people at work but they all lacked the skills necessary to relay the information in terms my financially simple mind can understand.

Thanks if you can!

ep

[epiphany]

I would just like to clarify, because I don't think I made it clear, that I am talking about the short selling of stocks. Short Sales. Not a BK question, although I am sure it has caused some.

The feds put a ban of the short selling of financial institution stocks this morning and I am just trying to understand what exactly they are banning.

Thank you again,
ep

[keepmine]

Short selling is, when you sell a stock in anticipation of a price decline. When you close out the trade, you buy it back.
Years ago, short sellers had to abide by the "uptick rule". Before you could initiate a short sale, the previous trade had to be at a higher price. This is when stocks traded in 1/8 of a point increments [.12 1/2 a share].
There is speculation that short sellers have excerbated the problem in financial stocks by taking large short positons and then spreading false rumors about the company they shorted.

Here's an example

http://www.al.com/business/huntsvilletimes/index.ssf?/base/business/122017411993420.xml&coll=1

[epiphany]

Short selling is, when you sell a stock in anticipation of a price decline. When you close out the trade, you buy it back.
Years ago, short sellers had to abide by the "uptick rule". Before you could initiate a short sale, the previous trade had to be at a higher price. This is when stocks traded in 1/8 of a point increments [.12 1/2 a share].
There is speculation that short sellers have excerbated the problem in financial stocks by taking large short positons and then spreading false rumors about the company they shorted.

Here's an example

http://www.al.com/business/huntsvill...420.xml&coll=1

Thanks much Keeb. It is a great article and I kinda get it now but.........

How is this profitable to the broker that they "borrow" the shares from in the first place? Why do they allow it? I do not understand that piece of the puzzle.

Short-selling is legal. It involves borrowing shares from a broker and selling them quickly. Later, the short-seller goes back into the market, uses the sale proceeds to buy the still-falling and cheaper stock, returns the shares to the broker and pockets the difference.

[keepmine]

It's profitable to the broker because, they recieve a commission on the transaction.
It's allowed because, it does provide liquidy to the markets. In a down market, the short seller covering {buying} to offset the trade can actually provide a floor.

[epiphany]

Thank you. I am still scratching me head a little but it's clearer than it was.



ep