Short Selling Questions Answered Ask, Answer and Discuss on Question and Answer We answer questions about shorting and the process of short selling in this section. Q. What is short-selling? Q. I still can’t understand what short selling is… Q. Can you show me an example where you short-sell a stock? Q. Tell me about the history of shorting Q. What is ‘naked’ short-selling? Q. What about using a covered short to hedge against my core shareholdings going down in the short-term? Q. But don’t stocks tend to rise in the long run? Q. What are benefits of naked short selling? Q. What short selling instruments are available? Q. How popular is short selling in practice? Q. How long does a short trade last for? Q. What are the limitations/restrictions on short selling? Q. What if a stock is listed that it cannot be short sold? Q. I’m being charged a borrowing cost for my short position. What is that? Q. Why do some companies or brokers impose borrowing costs on one stock and don’t impose such a fee on others? Q. Are there any differences in short selling between a Market Maker as opposed to a Direct Market Access Broker? Q. Why on earth would someone lend me shares which he paid good money for when your intention is to profit from the shares falling!!? Q. Ok, but who is in practice lending me shares when I go short on a CFD trade? Q. During the short period does the LENDER actually own less shares? Q. Are underlying shares actually borrowed and sold if I create a short position with a CFD? Q. What’s the logic of a broker paying interest if you go short if you still use margined trade with borrowed money? Q. But where do brokers get the money to pay the interest on a short account if they don’t have an opposing long position? Q. But you should have to buy something before you earn the privilege of being allowed to sell it! Q. Why does short selling reduce share prices? Q. What can you do to prevent your shares holdings from being shorted? Q. Is there any advantage of shorting CFDs as opposed to shorting stocks? Q. Is short selling legal? Q. Personally I do not like shorting. The idea that you can sell something you don’t own is somehow unethical and morally disturbing… Q. Is short selling evil? Q. What are the dangers of shorting a stock? Q. Why is selling a share any more risky than buying one? Q. Why doesn’t my broker let me short certain penny stocks? Q. I’ve tried to open a short position on a share but received a prompt: ‘Trading Short for selected instrument disabled.’ Q. The big difference is that excessive shorting ‘can’ lead to the collapse of a bank which affects its customers, their businesses, and the wider economy… Q. ‘Indeed short selling may have a calming effect on price movements’ – what calming effect!? Q. Is making money the sole purpose of short-selling? Q. Are there any famous examples of short-selling? Q. $1 billion – that sounds good. But are there any risks? Q. I may try to short the FTSE at some point and pray that the 4th wave will come! Q. Why the recent banking crisis? Q. Is it possible a lot of fake derivatives have been sold and bought? Q. What is the uptick rule and can it really help soften a market crash? Q. Can short-selling destroy a company on its own? Q. Why are hedge funds and shorters being blamed? Q. What has been the hedge funds reaction? Q. What is Warren Buffet’s take on short selling? Q. Will disclosure of short positions make any difference? Q. What led the authorities to issue a ban on shorting of financial stocks? Q. Will the ban on short-selling financial stocks work? Q. Should I be buying shares in a company after it has issued a profit warning?