Financial term of the day, Tuesday 31st of May 2016:

Selling short

If an investor thinks the price of a stock is going down, the investor could borrow the stock from a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you borrow 1000 shares of British Petroleum on July 1 and sell it for 8 per share. Then, on Aug 1, you purchase 1000 shares of BP at 7 per share. You've made 1000 (less commissions and other fees) by selling short.

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Short selling
Short selling, usually just referred to as "shorting", involves selling an asset that is not in posession. Suppose an investor instructs a broker to short 20,000 STL shares. The broker will carry out the instructions by borrowing the shares from another client and selling them in the market in the usual way. The investor can maintain the short position for as long as desired, provided there are always shares for the broker to borrow. At some stage, however, the investor will close out the positi ...

Selling short
If an investor thinks the price of a stock is going down, the investor could borrow the stock from a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you borrow 1000 shares of British Petroleum on July 1 and sell it for 8 per share. Then, on Aug 1, you purchase 1000 shares of BP at 7 per share. You've made 1000 (less commissions and other fees) by selling short.

Selling group
All banks involved in selling or marketing a new issue of stock or bonds.

Selling Away
When a broker solicits you to purchase securities not held or offered by the brokerage firm. As a general rule, such activities are a violation of securities regulations. Typically, when a broker is "selling away," the investments are in the form of private placements or other non-public investments.

Short-term bonds
Bonds with a maturity of between one and five years.

Short-squeezed
If the broker runs out of shares to borrow at any time while a short contract is open, the investor is short-squeezed and is forced to close out the position immediately even if not ready to do so.

Short Term Gain
The profit realized from the sale of securities or other capital assets possessed for twelve months or less.

Creditors, short
This is all current liabilities payable on demand or within one year of the Balance Sheet date. For Banks this also includes short term bank liabilities such as deposits.

Synthetic short sale
Buy one put option and write one call option.

Short-term tax exempts
Short-term securities issued by states, municipalities, local housing agencies, and urban renewal agencies.

Short-term solvency ratios
Ratios used to judge the adequacy of liquid assets for meeting short-term obligations as they come due, including (a) the current ratio, (b) the acid-test ratio, (c) the inventory turnover ratio, and (d) the accounts receivable turnover ratio.

Short-term investment services
Services that assist firms in making short-term investments.

Short-term financial plan
A financial plan that covers the coming fiscal year.

Short-run operating activities
Events and decisions concerning the short-term finance of a firm, such as how much inventory to order and whether to offer cash terms or credit terms to customers.

Shortfall risk
The risk of falling short of any investment target.

Shortage cost
Costs that fall with increases in the level of investment in current assets.

Short straddle
A straddle in which one put and one call are sold.

Short sale
Selling a security that the seller does not own but is committed to repurchasing eventually. It is used to capitalize on an expected decline in the security's price.

Short position
Occurs when a person sells stocks he or she does not yet own. Shares must be borrowed, before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought to close out the transaction. This technique is used when an investor believes the stock price will go down.

Short interest
This is the total number of shares of a security that investors have borrowed, then sold in the hope that the security will fall in value. An investor then buys back the shares and pockets the difference as profit.

Short hedge
The sale of a futures contract(s) to eliminate or lessen the possible decline in value ownership of an approximately equal amount of the actual financial instrument or physical commodity.

Short bonds
Bonds with short current maturities.

Short
One who has sold a contract to establish a market position and who has not yet closed out this position through an offsetting purchase; the opposite of a long position.

Did you know?

Position diagram

Diagram showing the possible payoffs from a derivative investment.


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