Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Patricia Trinchero who wrote (174819)	1/2/2009 2:52:28 PM
From: James Hutton	Read Replies (1) \| Respond to of 306849

When you short, you borrow the shares from your broker. Accounting-wise, the shares and their value show up as a negative in your account, but your cash account is credited the value of the shares. If the value of the shares goes down (good), you can buy them with the cash credited in your account and you will pocket the difference. If the value of the shares goes up (bad), you can buy with the cash in your account, plus the difference between the cash value at which you borrowed the shares and the increased value of the shares. That cash either comes out of your cash account, or you have to sell shares to raise the cash. If the value of the shares goes up too high (very bad) beyond a certain limit, the broker can sell shares (without your knowledge) to raise cash to buy the shares back. In that case you have a loss on the short sale, and you may have a loss on the shares that were sold out of your account without your knowledge.

To: Patricia Trinchero who wrote (174819)	1/2/2009 3:03:51 PM
From: John Koligman	Read Replies (1) \| Respond to of 306849

Also, in addition to what James wrote to you, the 'potential' loss in a short position is 'theoretically' unlimited if you continue to be able to put up margin and the stock continues to rise. As far as gain, the issue you shorted can at best go to zero, so that is your max gain. Best regards, John PS - Shorting can be a dangerous game, many experienced investors shorted the internet stocks during that craze, with good reason based on their insane valuations. However, these stocks in many cases continued to rise for no rational reason, burning many shorts who could not hold on until they crashed in 2001... The converse was true in the second half of 2008, where many issues could almost be 'shorted at will'...