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What is a Short Sale? Short Sale Explained

What is a Short Sale? Short Sale Explained. Ask The Professor is a finStream TV personal finance short form video series hosted by real life Professor Mike Milligan. In this episode of Ask The Professor, the Professor answers the question: What is a Short Sale? Gamestop and AMC Theatres are reviewed. What is a Short Sale? A short sale is an investment strategy in which an investor sells borrowed securities, typically stocks, with the intention of buying them back at a lower price in the future. In other words, the investor is betting that the price of the security will decline, allowing them to repurchase the shares at a lower price and return them to the lender, profiting from the difference. Here's how a short sale works: Borrowing Securities: The investor borrows shares of a security from a brokerage firm or another investor through a process known as "short selling." The borrowed shares are typically sold in the market, generating proceeds for the investor. Selling in the Market: After borrowing the shares, the investor sells them in the open market at the prevailing market price. This transaction creates a short position for the investor, as they are now obligated to replace the borrowed shares at a later date. Waiting for Price Decline: The investor hopes that the price of the security will decline over time. If the price falls as anticipated, the investor can repurchase the shares at the lower price, known as "covering the short," and return them to the lender. Closing the Short Position: To close the short position, the investor buys back the same number of shares that were initially borrowed and sold. The shares are repurchased in the open market at the current market price, regardless of whether it is higher or lower than the price at which they were sold short. Returning Borrowed Shares: After repurchasing the shares, the investor returns them to the lender, completing the short sale transaction. If the price of the security declined as expected, the investor realizes a profit from the difference between the sale price and the purchase price. However, if the price increased, the investor may incur a loss on the short sale. Short selling can be a speculative investment strategy used by traders and investors to profit from declining prices in the market. It can also serve as a hedging strategy to offset losses in a long position or to manage portfolio risk. It's important to note that short selling involves significant risks, including the potential for unlimited losses if the price of the security increases instead of decreases. Additionally, short sales require borrowing securities, which may not always be available or may be subject to restrictions, such as borrowing costs and margin requirements imposed by brokerage firms. As such, short selling should only be undertaken by experienced investors who understand the risks involved and have the ability to manage those risks effectively. Facebook=  / finstreamtv   instagram=  / finstreamtv   twitter=  / finstreamtv   #finstream #shortsale