Short Selling Mechanics
Short selling means borrowing shares, selling them and hoping to buy them back cheaper. Here is how a short sale works step by step, what short sellers owe and the rules that govern it.
Sell first, buy later
| Step | What happens |
|---|---|
| 1. Locate | Your broker confirms shares can be borrowed |
| 2. Borrow and sell | You sell the borrowed shares and receive cash |
| 3. Wait | You pay borrow fees and any dividends to the lender |
| 4. Buy to cover | You buy shares back and return them |
| Result | Profit if you bought back lower; loss if higher |
Short selling requires a margin account.
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