A client
recently asked us if individual investors can do what is called short
selling. Our answer to him was that yes,
individual investors can definitely execute short sale trades. The basic definition of a short sale is when
an investor sells a security that they do not own (typically stocks) borrowing
the security from someone else (typically through or from their financial
institution). Investors who execute
short sales are betting that the value or price of the security they are
selling is going to decrease. If the
price does decrease they can exit the trade by buying back the security in the
market and giving it back to the original owner to pay off their
"loan" at a lower price and keeping the difference as their profit.
If, however, the price of the security goes up instead of down, and the
investor does not own the security they are shorting their downside and hence
risk is unlimited because the price can theoretically go to infinity! The investor would need to buy back the
security in the market at a higher price than they borrowed it for and hence
they would have a loss on their trade.
White House Financial & Settlement Consulting helps families live an easier and less stressful life through the proper management of their financial resources. We do this by acting as our clients’ trusted advisor providing a personal touch customized to the client’s needs! Please visit our web site at www.whitehousellc.com for more information!
White House Financial & Settlement Consulting helps families live an easier and less stressful life through the proper management of their financial resources. We do this by acting as our clients’ trusted advisor providing a personal touch customized to the client’s needs! Please visit our web site at www.whitehousellc.com for more information!