Short selling

Short selling is an INVESTMENT technique that makes MONEY when the price of stock is falling. The investor sells stock that he or she does not own for delivery on a future date. At first glance this seems impossible. However on the delivery date, the investor must buy the stock from the open market, upon which he or she can fulfill the commitment to deliver the stock in the original sale agreement. If, during the time between the original sale date and the delivery date, the stock price has fallen, the investor buys the stock to be delivered at a lower price and so makes a PROFIT on the falling price. The reverse is also true; if, during the delayed delivery time, the price rises, the investor must buy the stock at a higher price and therefore loses money. As a result, during a time when stocks are falling in value, it is possible to make money on the STOCK MARKET. Stock brokerage firms facilitate short selling, often lending shares owned by the brokerage house. Most brokerage firms will allow short selling only on an “up tick”—that is, when the price of the stock advances. This prevents investors from “jumping on the bandwagon,” selling short a stock whose price is plummeting. Mack Tennyson