Trading Stock

Selling Short

While most individuals invest in the market when they believe a stock's price will go up, some sell short because they believe it will go down. To sell short, investors open a margin account, borrow shares from their broker and sell the shares on the market. When the stock price decreases to a satisfactory level, investors cover the short position by buying the shares back (also called "buy to cover"). Their profit is the difference between the price at which they sold the borrowed shares and the price at which they repurchased the same number of shares in the market, plus the transaction costs and any additional fees.

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The risks associated with selling short may be even greater than those associated with straightforward investing. If the stock price increases instead of decreases, you may end up paying much more to re-buy the shares so that you can return them to your broker than you realized by selling the shares. You may owe interest as well. There is a limited supply of shares available to short, and certain stocks may not be available to short.

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The information and content provided in the Scottrade® Knowledge Center is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.