How long can you short sell for?

By Jean Folger AAA
A:

When an investor or trader enters a short position, he or she does so with the intention of profiting from falling prices. This is the opposite of a traditional long position where an investor hopes to profit from a rising market.

A brokerage firm lends shares or contracts to the customer who engages in the short sale. The firm uses its own inventory, another customer's margin account or another lender to supply the shares or contracts to the shorting customer. The customer typically pays interest on the loan, and if a borrowed stock pays a dividend, the customer is also responsible for paying the original owner the value of the dividends.

In theory, you could keep a short position open indefinitely to take advantage of a falling market. Technically, you could be required to "buy to cover" this position if the lender demanded the shares or contracts back; however, this would be uncommon.

You must have a margin account to short stocks, and you could also be forced to close the position if you receive a margin call. Your broker will issue a margin call if the value of your account falls below a certain threshold, and the broker can liquidate any position in your portfolio without consulting you. The broker has the right to decide which positions to close, including any short positions.

RELATED FAQS

  1. How does short selling help the market and investors?

    Find out how short sellers provide a service to the market by acting as a check against overvalued companies and exposing ...
  2. What is the difference between capitalization rate and rent?

    Find out the difference between capitalization rate and rent and why they are so important to making wise investments.
  3. What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being ...
  4. How do I build a profitable strategy when spotting a Rounding Top pattern?

    Learn a simple stock trading strategy that is designed to profit from a bearish trend reversal following the formation of ...
RELATED TERMS
  1. David Einhorn

    Known for his short selling strategy, activist investor David ...
  2. Short Call

    A type of strategy regarding a call option, which is a contract ...
  3. Long-Short Ratio

    The amount of a security available for short sale compared to ...
  4. Stock Loan Rebate

    Interest paid by a stock lender to a borrower who has put up ...
  5. Stock Loan Fee

    A fee charged by a brokerage firm to a client for borrowing shares. ...
  6. Short-Interest Theory

    A theory which holds that a security with a high degree of short ...

You May Also Like

Related Articles
  1. Investing

    How to Short Alibaba

  2. Trading Strategies

    Risk Management Techniques For Shorting ...

  3. Investing Basics

    Why Is Short Selling Legal? A Brief ...

  4. Options & Futures

    Pick the Right Brokerage Account for ...

  5. Active Trading

    The Elder-Ray Indicator: Seeing Into ...

Trading Center