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Strategies & Market Trends : SHorting Stocks: Education/strategies/techniques

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To: Early Bird who wrote ()	2/22/1997 7:26:00 PM
From: Early Bird	of 99

More from AvidInfo.com: How to short sell As described above under "What is short-selling?" selling short is accomplished simply by placing a call to your broker and asking if you can borrow a certain number of shares of a certain stock to sell short. Your broker then relays your question to his or her brokerage's Stock Loan or Margin department, often while you are briefly on hold during the phone call. Assuming that the stock is available to loan to you, or that the brokerage could borrow the stock from a competitor to loan to you, you then place a sell order with your broker as you would place any sell order. So what happens to the money that was raised by the sale of the borrowed shares? Initially, fifty percent of it must remain in the trading account in which you shorted the stock. This is called margin, and it must reflect no less than 35% of the shorted stock's value at any given time (with some brokerages that minimum may be slightly higher). If you take any of the un-required margin balance or sale proceeds, and the shorted stock's value rises to a level at which the remaining margin balance falls below that 35% minimum, then you will be required to deposit more money into the account or to buy the stock back to cover the short position. (This risk is dealt with more fully in the Risk vs. Reward section below.) There is also interest charged to your account against the value of the outstanding short position. When the stock's price reaches a level that meets your goals, or that exhibits some sort of trading action from which you reason that the downtrend is over, you call your broker and place a buy order -- very similar to any other buy order -- to lock in the lower price, and to off-set your account's short position, thus closing out the position and your risk exposure. As described earlier, your profit would be based on the difference between the price at which you shorted the stock, less the price at which you bought it back to cover the position, less any commissions and fees.

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