Our Recommended Broker

Get $50 in free trades.
Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max FAQs
Home
Disclaimer
Learning Topics
Contact Us
FAQ Archive

Short Selling

Investors with margin accounts have the option of short selling a security if they believe it will drop in price. An investor selling short borrows the security from a broker to sell in to the market with the agreement that it must be bought back at a later date (preferably at a lower price) and returned to the broker. There is "an uptick rule" from the US SEC mandating that short sales can only be made in a rising market to protect those who are "long" in the stock. Unlike most investments your potential for loss is unlimited unless you place a stop buy order to protect yourself. If the security increases dramatically in price, you must repurchase it at the market price in order to return it to the broker. Short selling is legal, but is a highly speculative and risky form of investing.

References:

The Art of Short Selling.

Author:Kathryn F, Staley
Published information:New York: John Wiley & Sons, 1997

How to Invest in Canadian Securities.

Author:Canadian Securities Institute
Published information:Toronto, Ontario: Canadian Securities Institute, 2000
Resource Centre call number:332.60971 C16

When Stocks Crash Nicely.

Author:Kathryn F, Staley
Published information:New York: Harper Business, 1991