| Basically, short selling of stocks refers the selling of a | | | | at a higher price. |
| stock not necessarily owned by the seller. To be | | | | Brokers are necessary if you plan on short selling |
| more specific, it is the short sale of a security that | | | | stocks. When you use a broker, you will need to set |
| the seller does not own but promises to deliver | | | | up an account with a brokerage firm either in cash or |
| anyway. When you short sell a stock, you must have | | | | a margin account. With cash accounts, you will be |
| a broker who lends it to you. The stock may come | | | | required to pay for your stock along with the |
| from the brokerage firm's own inventory, from | | | | purchase. On the other hand, securing a margin |
| another brokerage firm, or from one of your | | | | account with the broker allows you to borrow a |
| brokerage firm's customers. | | | | portion of the funds at the time of your purchase. |
| Once the shares are successfully sold, the earnings | | | | The security will serve as your collateral. |
| are credited to your account. Eventually, you would | | | | In essence, the stock you are short selling does not |
| have to "close" the short. This is done by buying | | | | belong to you as you borrowed it before selling it. |
| back the same number of shares and then returning | | | | You must therefore pay any stock lender the |
| them to your broker who lent you the stocks you | | | | dividends or rights declared during the process of the |
| sold. If the price of the stock is lower you make a | | | | loan. Therefore, you will owe the lender of the stock |
| profit because you could buy the stock back at a | | | | twice the number of shares if the stock splits during |
| lower price. Short sellers lose money when the price | | | | the course of the loan. |
| of the stock rises because they have to buy it back | | | | |