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Definition of Short selling

Short Selling Image 1

Short selling

Establishing a market position by selling a security one does not own in anticipation of the price
of that security falling.



Related Terms:

Selling short

If an investor thinks the price of a stock is going down, the investor could borrow the stock from
a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you
borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares
of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.


Hedging

A strategy designed to reduce investment risk using call options, put options, short selling, or futures
contracts. A hedge can help lock in existing profits. Its purpose is to reduce the volatility of a portfolio, by
reducing the risk of loss.


Optimum selling price

The price at which profit is maximized, which takes into account the cost behaviour of fixed and variable costs and the relationship between price and demand for a product/service.


SELLING EXPENSES

What was spent to run the sales part of a company, such as sales salaries, travel, meals, and lodging for salespeople, and advertising.


Selling group

All banks involved in selling or marketing a new issue of stock or bonds



Selling price variance

The difference between the actual and budgeted selling price for
a product, multiplied by the actual number of units sold.


Short

One who has sold a contract to establish a market position and who has not yet closed out this position
through an offsetting purchase; the opposite of a long position. Related: Long.


Short Selling Image 2

Short bonds

Bonds with short current maturities.


Short book

See: unmatched book.


Short hedge

The sale of a futures contract(s) to eliminate or lessen the possible decline in value ownership of
an approximately equal amount of the actual financial instrument or physical commodity.
Related: Long hedge.


Short interest

This is the total number of shares of a security that investors have borrowed, then sold in the
hope that the security will fall in value. An investor then buys back the shares and pockets the difference as profit.


Short position

Occurs when a person sells stocks he or she does not yet own. Shares must be borrowed,
before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought to close out the
transaction. This technique is used when an investor believes the stock price will go down.


short position

The sale of an investment, particularly by someone who does not yet own it.


Short rate

The annualized one-period interest rate.


Short-run operating activities

Events and decisions concerning the short-term finance of a firm, such as
how much inventory to order and whether to offer cash terms or credit terms to customers.


Short sale

selling a security that the seller does not own but is committed to repurchasing eventually. It is
used to capitalize on an expected decline in the security's price.


Short Selling Image 3

Short sale, short position

The sale of a security or financial instrument not
owned, in anticipation of a price decline and making a profit by purchasing the
instrument later at a lower price, and then delivering the instrument to
complete the sale. See Long position.


Short squeeze

A situation in which a lack of supply tends to force prices upward.



Short straddle

A straddle in which one put and one call are sold.


Short-term financial plan

A financial plan that covers the coming fiscal year.


Short-term investment services

Services that assist firms in making short-term investments.


Short-term solvency ratios

Ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.


Short-term tax exempts

short-term securities issued by states, municipalities, local housing agencies, and
urban renewal agencies.


Shortage cost

Costs that fall with increases in the level of investment in current assets.


shortage costs

Costs incurred from shortages in current assets.


Shortfall risk

The risk of falling short of any investment target.


Living Benefit

Some insurance companies include this benefit option at no cost to their policy holders. The insurer considers on a case to case basis, the need for insurance funds before death. If the insured can demonstrate a shortened life of less than two years and with some insurers one year, the insurer will consider releasing up to 50% or a maximum of $100,000 of the life insurance coverage held by the insured. Not all insurers offer this benefit for free. The need has resulted in specific stand alone living benefit/critical illness policies coming into existence. Look under "Different types of Life Insurance" for further information. You might have heard of "Viatical Settlements", the practice of seriously ill people selling the rights to their life insurance policies to third parties. This practice is common in the United States but has not caught on in Canada.


Naked option strategies

An unhedged strategy making exclusive use of one of the following: Long call
strategy (buying call options ), short call strategy (selling or writing call options), Long put strategy (buying
put options ), and short put strategy (selling or writing put options). By themselves, these positions are called
naked strategies because they do not involve an offsetting or risk-reducing position in another option or the
underlying security.
Related: covered option strategies.




 

 

 

 

 

 

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