Explain short selling

The difference is when buying low and selling high the person will actually own the shares before selling them higher.

Short selling you don't own the share at the moment of sale you just IOU it! This is riskier as you are in debt to someone.

It's the way I understand it, I could be wrong.
 
Despite the bad press, I believe short selling can be good for the market to keep things realistic and help prevent a stock from becoming hugely over-valued...
 
i was confused by this program as well lol

but after reading posts on here i think i get it so heres my example :D:

if i buy then sell a Q6600 for the current price of £163.29, then wait for the price to fall to about £141.99, then the buyer now wants to get rid of it (to get an i7 maybe:)) i then buy it back at £141.99 making me a profit of £21.30. simple :D

currect? :p
 
QlimaxUK said:
i was confused by this program as well lol

but after reading posts on here i think i get it so heres my example :D:

if i buy then sell a Q6600 for the current price of £163.29, then wait for the price to fall to about £141.99, then the buyer now wants to get rid of it (to get an i7 maybe:)) i then buy it back at £141.99 making me a profit of £21.30. simple :D

currect? :p
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No (you said "currect", too :().

OcUK has a Q6600 for £150.00. You have heard about secret price cuts from Intel. You borrow the £150.00 Q6600 from OcUK and you sell it to someone in the MembersMarket for £150.00.

Then a week later, the prices drop as you expected! They drop to £140.00. So, you buy Q6600 from OcUK for £140.00, and you give that back to them (because you initially only borrowed a Q6600 from them).

You make £10.00.

However, if the price of the Q6600 was to go up by £10, you'd lose £10 because you be forced to buy one for £160.00 and give that back to OcUK, as a repayment for the Q6600 priced at £150.00 that they initially lent to you.
 
QlimaxUK said:
i was confused by this program as well lol

but after reading posts on here i think i get it so heres my example :D:

if i buy then sell a Q6600 for the current price of £163.29, then wait for the price to fall to about £141.99, then the buyer now wants to get rid of it (to get an i7 maybe:)) i then buy it back at £141.99 making me a profit of £21.30. simple :D

currect? :p
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Not quite...
in your example, ignoring the concept of depreciation which would affect your example significantly, but not a stock / commodity
you buy the cpu: £-163
you sell the cpu £+163 = £0
you buy it back, £-141.99 = you made a loss of £141.99 and only have a processor worth £141.99 and have made no money

Really, you would borrow the cpu off the first person £-0.00
sell the cpu on to the first person £+163 = £163
buy the cpu off of someone else when the price falls and give it back to the person you borrowed it off £-141.99

knew I'd been beaten when I posted this but figured I might as well not waste it ;)
expanding on Hatter if the price were to triple you would lose far more than your initial investment, whereas with a normal long sell you're only risking your initial investment as the price can't drop below zero
They also employ hedging in a related stock to reduce the risk from shorting, but that's another matter...

There must be literally hundreds of random terms that you hear (work for a company that creates trading software) and some of them sound pretty funny, can't remember most of them though :(
 
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Step 1: Borrow 1000 shares at £1.00 each.
Step 2: Share price goes down to 0.50p
Step 3: Eventually you must close the trade by buying the same number of shares (covering). The price has dropped so I actually buy them at the lower price and make a profit on the difference.
 
hehe I like it: "but the authorities have been reluctant to launch investigations due to the complicated nature of the financial system"

See, this is where I shake my head in wonder. What ever happened to just selling something you own? lol
Sorry, that's naive, I know, but I've never really approved of a lot of stuff I've heard about banking and financial practise. Don't get me wrong, I don't have an answer as to how to better do that stuff; it just seems like a whole load of smoke and mirrors in order to make 'loads-a-manney!'.

It may work perfectly well most of the time but all of this economic and financial chicanery, so far as I can work out, is a very precarious business.
And the implications for basing the economy of an entire country on it have some obvious pitfalls.
 
Yep, it does seem like there's too much based on what's really just an imaginary number, but as long as money exists it's going to happen in one form or another as much as you can try to regulate it.
 
i logged off last night after posting my last message on here so im posting today...

ok my example was wrong fair enough :( i just wanted to use a 'product example' to make it simple (ok maybe i should have using rounded numbers LOL what was i thinking)

so different question now: why do these companys... or brokers lend out shares in the first place it dosn't make sence as they are basically giving away part of their business... for free it seems, and then they buy them back AT A LOSS!!! what kind of business sence does that make! :confused:

EDIT: i think these shareholder people are aliens!!! to be able to understand such complex systems, im sure a simpler way of working shares could have been invented!
 
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QlimaxUK said:
so different question now: why do these companys... or brokers lend out shares in the first place it dosn't make sence as they are basically giving away part of their business... for free it seems, and then they buy them back AT A LOSS!!! what kind of business sence does that make! :confused:
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The people lending them to the borrower would be people who expect the share price to go up interveneing time, therefore when that times up, the borrower would have to buy them at a higher price later.

Either way, someone gets shafted in the deal.
 
so could you borrow 51% or even 100% of the total shares giving you control over the business, so you could then make sure that the share price goes wayyy down :D but then it backfires and the business does really well as a result becuase of your 'thinking outside the box' so you still lose :p
 
edit: this was in response to QlimaxUK's previous post but a bit too late!

the company lending the shares doesn't buy them back though, they lend them out so they get them back for free, in-fact I think they will charge commission so that they can make money out of it.
You also assume there that the price does actually go down ;) - if it doesn't then the company hasn't lost anything, if it does... then they may (I'm guessing here) still be able to sell those shares even though they have been lent out, as they know that they will have them when the borrower returns thm.
 
to borrow the controlling stake in the business you would have to have someone to borrow from who already owns that many shares before you could actually sell them... unless you do it naked... I'm not sure that would even count as yours since you never had the shares in the first place... If you did try to sell that many shares the stock would probably be suspended or something.

also bear in mind that if you own more than half the shares you will never be able to close your position ;)
 
I hate the way the banks are allowed to lend out money they don't have at silly ratio like 100:1 to money they actually have in their assets.

If I tried that on I'd get done for fraud! :D

Err.....not really related to the topic though.
 
don't worry its on again tonight to confuse us again :D

but for now im going to watch something a 'little' easier to understand.....

simpsons on CH4+1 :D
 
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