Shorting

Short is for the investor who believes a particular share price will fall, or that an over-priced stock will be brought back to value.

Accordingly, an investor can “borrow” the stock from brokers before selling it in the market. The intention is to sell a stock with the intent to buy it back later at a cheaper price.
Selling stock short through a shortable account enables a wide range of hedged, arbitrage, pairs trading and special strategies.

In order to sell stock short, you first need to borrow the securities. Subsequently purchasing the stock back results in a profit or loss on the transaction, and enables the investor to return the “borrowed” stock.

Once again, you are required to lodge funds as security (ordinarily 25% initial margins) and to cover all net debit adverse market movement (variations margins). Should the position move against the you, then they are required to “top-up” your account.

Your borrowed securities (and other securities you put up as margin cover) will be marked to the market at least daily to ensure your have sufficient margin cover. Should additional margin cover be required, your broker will call you. It is, however, always your responsibility to maintain adequate margin cover, whether or not your broker call you. You must make additional margin available no later than 3.00 pm the following business day.

How do I sell a stock I don’t own?

You check your broker platform. If the platform allows you to short a stock, then you can short it. In some case, you will need to contact your broker to check on stock availability. If stock is available to borrow your broker will “hold” the shares you wish to borrow until the close of business the following business day.

Your trading platform or stockbroker then execute the sale.

If you have not sold the “held” shares by close of business the following business day then your “hold” will lapse and you will need to re-try.

your broker will hold the margin cover and sale proceeds until you buy the stock back. When you buy the stock back, you return the equivalent of the borrowed stock.

Margin Calls

Your securities borrowed from your broker (and securities put up as margin cover) will be marked to the market at least daily to ensure your have sufficient margin cover. Should additional margin cover be required, your broker will call you. It is, however, always your responsibility to maintain adequate margin cover, whether or not your broker call you. You must make additional margin available no later than 3.00 pm the following business day.

Term
There is no minimum term. Lots of brokers have maximum term of 11 months.