May 22, 2013
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Description
In finance short selling is the practice of selling securities or other financial instruments that are not currently owned, with the intention of subsequently repurchasing them at a lower price. In the event of an interim price decline, the short seller will profit, since the cost of repurchase will be less than the proceeds received upon the initial sale. Conversely, the short seller will incur a loss in the event that the price of a shorted instrument should rise prior to repurchase. The potential loss on a short sale is theoretically unlimited in the event of an unlimited rise in the price of the instrument, however in practice the short seller will be required to post margin or collateral to cover losses, and any inability to do so on a timely basis would cause its broker or counterparty to liquidate the position. In the securities markets, the seller generally must borrow the securities in order to effect delivery in the short sale. In some cases, the short seller must pay a fee to borrow the securities and must additionally reimburse the lender for cash returns the lender would have received had the securities not been loaned out. Historically, short selling is going against the upward trend of the stock market, with the S&P 500 and S&P 90 index realizing an average gain of approximately 9.77% return between 1926 and 2011.
(via Freebase)
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