Short selling refers to the order to sell securities that seller does not actually own. The seller must borrow securities via a broker and return them to the lender at the end of loan period. Short seller believes that current price is too high and will fall soon.
Procedures:
· borrow securities
· inform broker the order is a short sales
· return security at the request of lenders or when closed out.
Rules of short selling:
· Shorting only allowed if previous price movement is up (uptick rule).
· Short seller must pay dividends due to the security lender.
· Short seller must deposit margin money to guarantee the repurchase of the security (to cover the possibility of the price rising after the short sale)
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