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Short Sale

A method of gaining profit from an anticipated decline in the price of a stock.

An individual who sells short sells either stock or SECURITIES that he or she does not own and that are not immediately ready for delivery. Generally the seller borrows the shares needed to cover the sale from a BROKER and then delivers these shares to the buyer. The seller deposits an amount that is equal to the value of the borrowed shares with the broker. This amount stays on deposit with the broker until the stock is returned. The seller must ultimately return the same number of shares of the same stock to the broker, and the transaction is not fully executed until the stock is returned. The broker lending the stock is entitled to all the benefits he or she would have received if the stock had not been lent. When a dividend is paid, then the seller-borrower is required to pay the broker-lender an amount equal to the dividend.

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