Question Regarding Short Selling.?

Question

Exactly how does short selling work? i understand it is the complete opposite of going long, however can you buy a stock say today at 10 and sell it couple days later at 9 dollars and make a dollar a share? or is there a time frame you must wait?

Also, what is the tax percentage you must pay for those profits?

To short, you must take into consideration your brokers fee, tax % and still be able to turn a profit?

I'm new to the market and just looking for some answers to these questions.

thanks.

don

Answer 1

short sale is generally the sale of a stock you do not own. Investors who sell short believe the price of the stock will fall. If the price drops, you can buy the stock at the lower price and make a profit. If the price of the stock rises and you buy it back later at the higher price, you will incur a loss.

Answer 2

When you execute a short sale you borrow shares that a brokerage owns or holds for another customer.  If you sell the borrowed shares for $10 and then sell them for $9, yes, you will make $1 per share less commissions and fees.  Also, you will owe any dividends received as the shares are not yours.  Sell anytime during the first 12 months and you will owe short term capital gains taxes; after that, long term gains just like long sales.  You will be able to turn a profit just like in long sales IF the stock falls. http://www.investorwords.com/4556/short_...

Good luck.  Too risky for my blood.

Answer 3

When you short sell, you sell a security that either you don't own or do not want to deliver

You sell short in anticipation of the price of the stock dropping so that you can buy back a lower price than you sold it for,

There's no time frame for the most part,  you can sell short and then immediately buy it back to cover the short, or you can take you time and hold the short position open

However, when you sell short, you must obtain the brokers permission prior to the sale, so that they can borrow the stock for delivery to the buyer,  The broker will borrow the stock, and in many cases they can not use the stock that's in house the have to go to the street to borrow

Commissions, taxes should not be a consideration since they are not material.  If one has to worry about commission, and taxes they should not trade,

Before you do any short selling it would be in your best interest to do some studying,

Here are some sites that may help

http://moneycentral.msn.com/home.asp

http://finance.yahoo.com/

http://www.investors.com/?tn=top

http://investorshub.advfn.com/default.as...

http://www.thestreet.com

http://www.brokerage101.com/

http://www.1source4stocks.com/

http://www.decisionpoint.com/TAcourse/TA...

http://stockcharts.com/

http://www.grahaminvestor.com/

http://www.thestreet.com/

study hard and well and invest even better

Answer 4

In short selling you have to borrow the shares and sell them.  Then some time later you have to buy back the same number of shares and return them to your broker.

If you manage to sell high and buy back low.  Then your profit is the difference between the two minus the comission fees.

But if you sell at the current price, and the price goes up, then eventually you would have to buy back at a higher price.  And the difference will be your loss.

Short selling is more risky than buying long.  Because the price of the stock can go up several-fold.  And you can end up loosing a lot more money than you've put in originally.  But when you buy long.  Then the most you can loose is 100%.

A safer way to short-sell is to buy ETF's that are inversely related to the price of stocks.  Such as DOG, MYY, SH, and others like them.  In this kind of short-selling, the most you can loose is 100%.  Which is a lot less risky than the normal short-selling where you can loose several hundred percent.

Answer 5

You should have 5 - 10 years trading experience before shorting a stock.

The mechanics are;

You sell a stock you don't own (behind the scenes, your broker has borrowed the stock and loaned it to you to sell... this is transparent to you).  This can only be done in a margin account.  

You "cover" the sell with a buy.   If you buy it for less money than you sold it for.... you've made a profit.

If you buy it back for more than you received for selling it, you've lost money. There is unlimited risk... because a stock can technically keep on going up.

This is incredibly risky.  I short all the time.... but I have 30+ years of trading experience.