Recent Posts

Thumb mystery group

What is Shorting?

What is Shorting?

Short Selling3    

Example:  

An investor believes that ABC Corp is trading higher than they believe it should be at $10.00. The investor then sells ABC Corp. at $10.00 from stock they have borrowed. If and when ABC Corp. share price starts to decline and settles to where the investor believes is a more reasonable price of the company, say $7.50, they then buy the stock that they sold at $7.50, return the shares borrowed to the lender with the shares they bought, thus making a $2.50 profit. (1000, shares sold at $10.00 = $10,000, then purchase the 1,000 shares previously sold at $7.50 = $7,500 or a $2,500 profit).  

 

Margins:

An investor under Exchange rules is also required to put up cash margin: a percentage of the sale amount. While this varies from institution to institution, two different examples of this could be as follows:   

Margins

Sale amount $10,000 or $5,000 - 50% margin cash requirement when shorting, until such time as the short position is covered (bought back). This is to protect the institution from losses should the shorted security rise in price instead of drop, and the investor therefore have to be bought in at a higher price than where they sold short.

 

 

http://www.questrade.com/pricing/DIY-Trading/margin-centre/stocks

https://www.td.com/ca/products-services/investing/td-direct-investing/accounts/margin.jsp  

Enjoyed this story?

Learn more about investing - take a quick tour of 8020 Connect.

Show me the quick tour  tag_faces

Related


Ride The Bull - AKA Investing
  In "Bull Horn"
Invest smartly in the shiny things you enjoy
  In "Bull Horn"

Thumb 8020 monitor 200 200  png

8020 Admin

8020 Admin is here to help and protect our community. If you need help or have concerns please message 8020 Admin.





You must be logged in to post a comment.