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"Short selling" is the process of selling something you don't have, promising to deliver later, on the basis that you expect the price to go down. Finance 101:
by squeegee5 9y ago
"Short selling" is the process of selling something you don't have, promising to deliver later, on the basis that you expect the price to go down.
Finance 101: You've just described a naked short, which is illegal in the US. You are required to cover the position.
- ColinWright 9y agoI stand corrected. Perhaps then you can clarify how one can "sell short" if one doesn't initially own any of the product. Someone else has said that you borrow it. But if you then sell it you are selling something you don't own, so that is also surely illegal. And if not, it amounts to the same thing. So it seems that when you don't initially own any of the product, the only way to "sell short" is to promise to buy it later which is still selling something you don't have. Unless it really is a case of persuading someone to "lend" it to you, and then selling that, so you are selling something you don't own, and someone else is trusting that you'll return it. Is that right?
- squeegee5 9y agoYou must have the funds to borrow. Shorting is risky, even more so going naked. Which is why its been illegal since 2008. In practice, professionals use covered call options to manage their risk.