![]() Two of the main reasons for stocks being shorted are to speculate and to hedge. Shorting stocks is common in the stock market, and is usually done by hedge funds and professional investors. ![]() The margin account also has a regulated minimum value, and if it falls below the maintenance margin, the investor is required to either add more funds to the account or sell their positions. In this arrangement, the broker lends cash to the investor to purchase stocks, which comes with an interest rate. In order to short the stock market, a trader must have a margin account, which is a type of brokerage account. However, shorting stocks theoretically has an unlimited risk of loss since there is no cap on the price of a stock. In contrast, short position investors borrow the shares from a broker and sell them at a higher price hoping the stock price will fall, so they can buy it back at the lower price and make a profit. Long position investors own shares of stocks that they bought at a lower price and keep ownership of the stock expecting the prices to rise in order to make a profit when the stock is sold. It’s essentially the opposite of long position investing. ![]() If the stock price goes down, it will result in a gain. What does it mean to short a stock? Short selling stocks is an advanced trading strategy used either to hedge or speculate the anticipated decline in stock price. Whether you’re an investor yourself or interested in learning about investing, you’re in the right place to discover just what is short selling, including how to short sell stocks as well as the risks and benefits of short selling Short Selling Explained Short selling is an advanced stock trading strategy where the investor sells their stock, in hopes that it’ll drop in price and they can buy it back, then return it to the lender.
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