Short Sale

A short sale is the sale of securities that an investor has borrowed from a broker. The investor must eventually purchase an equal number of the same securities and return them to the broker.

•  Open Position: When the investor acquires and subsequently sells the initial borrowed securities from the broker, but has not yet purchased the replacement securities, the investor is in an “open short position.”

•  Closed Position: When the investor purchases the replacement securities and returns them to the broker, the investor is in a “closed position.”

Generally the investor’s goal is to purchase replacement securities at a price lower than the price at which the investor initially sold them. The investor will realize a profit as a result of this price discrepancy if the value of the securities decreases. However, the investor will lose money if the value of the securities increases before the investor purchases them. In either case, the investor must also pay interest on the loan. 


