Thanks. Explains the mechanics of short selling. What I don't...

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dorianx

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16/09/15

17:56

Post #: 16005029
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Originally posted by Capablanca ↑

I'll try and help, even though I might not be the most knowledgeable. Basically it's when you borrow a stock, and give it back at a later stage.

Let's say you bought 100 DSH @ 1.50 per share, thinking the price will go up - and sell it for a profit later. This is called going long.

Shorting is the opposite.

This time you borrowed 100 DSH @ 1.50 per share from NAB for example. You're obliged to give back NAB their shares, but let's say SP dropped to 1.20 per share. That means you made a profit of 0.30 per share because when you return them to NAB, they are worth less now and it costs less to give back their 100 shares.

But imagine shares went to 1.70 per share, you could imagine the shorters sweating because they owe NAB 100 shares that are now 0.20 more expensive that the time they bought them. The risky thing about shorting is that losses are potentially infinite (share prices can go up and up forever), whereas if you go long the lowest a share price can go is zero.

Hope this helps

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Thanks. Explains the mechanics of short selling.

What I don't understand is how short selling affects the price long term? I can see it increasing volatility, but once the share price stabilizes, doesn't short selling become pointless as the shorters need to pay a fee to borrow the share.

Maybe I am being naive.

DSH Price at posting: $1.35 Sentiment: Buy Disclosure: Held
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Thanks. Explains the mechanics of short selling. What I don't...

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