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To: Lane3 who wrote (2329)9/15/2001 11:43:53 AM
From: Poet  Read Replies (1) of 51710
 
When you sell a stock short, you are borrowing someone's shares at the current price and holding onto them in hope that the share price goes down. Then you buy shares at the lower price (to close your trade) and return the borrowed shres, You keep the difference.

It is the second half of the short transaction, the buying of shares at a lower price, that increases liquidity. If a stock goes up after one shorts a stock, every point it rises is a loss to the short. Since shorting is done on margin, once the trade reaches a certain level, the brokerage may call the short and demand a cash infusion or liquidation of stock in the account, payable in three days (known as a margin call). This also increases liquidity.
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