The art of the short sale

  • Updated: June 16, 2012 - 6:02 PM

THE ART OF THE SHORT SALE

1. An investor thinks a company's stock price will fall.

2. The investor borrows shares of that company from a broker, sells them, and deposits the proceeds in a margin account.

3. After a period of time, the investor must repay the broker by buying back the shares at the current price.

4. If the stock price trades lower than when the shares were first borrowed, the investor pockets the difference. If the stock price trades higher, the investor loses money because the cost of repurchasing the shares is higher.

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