How do you sell short?


Quick Answer

Sell short by initially borrowing shares of a stock, selling the shares and returning an equal amount of the lent shares at a future date. This transaction is typically conducted between an investor and a brokerage firm, notes Dummies.com.

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Full Answer

Short selling lets a trader earn a profit when a company's stock experiences a decline in market value, states Dummies.com. To sell a stock short, follow the instructions provided below.

  1. Decide on the stock to trade
  2. Use the Internet to research about the current market trend. Find out which stocks are likely to decrease in prices and decide on a stock to sell short.

  3. Borrow shares of the stock
  4. Get in touch with a brokerage firm to establish a short stock position. Request to borrow shares of the stock with the intention of returning the shares at a specified date in the future. Pay the corresponding service fees and interest to the broker.

  5. Sell the shares
  6. Inform the broker to sell the shares immediately at the current market price. Verify that the trade went through by checking if the cash payment for the sell short order has been deposited in the account.

  7. Buy back the shares
  8. Repurchase the same amount of shares at a time when the stock has depreciated in value.

  9. Close the short stock position

    Settle the liability by returning the borrowed shares to the brokerage. Take the proceeds from the investment.

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