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 rising prices.

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. In practice, you can be required to "buy to cover" this position if the lender demands the shares or contracts back; however, this is 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.

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