2006-11-19 13:03:51 · 3 answers · asked by wm_h2002 3 in Business & Finance ➔ Other - Business & Finance
Selling short stocks or options is perfectly legal. Because you are taking on a financial risk, which you may not be able to cover, your broker will have limitations of what it will allow you to do, based on your account balances and investing experience.
A common practice to limit your risk is to buy a call option with a strike price (at which you can buy back the storck) that is quite a bit higher than the stock's current price. This option won't cost you much, but will limit your potential loss if the stock keeps going up instead. For example, if you sell short 500 shares of stock that is trading at $55/share, you can buy 5 call options to buy this stock at $70/share. It will not cost you much at all, but it also reduces your potential loss from having no limit to being capped out at $15x500=$7,500.
Also, to sell a stock short you'll need to have a margin agreement signed and approved by your broker firm.
2006-11-19 18:40:11 · answer #1 · answered by yishor 4 · 0⤊ 0⤋
Absolutely not. Short-selling, while many people dont understand it, is not illegal as long as the margins and calls can be adequately funded and backed (with cash or other stocks etc.)
2006-11-19 13:07:23 · answer #2 · answered by Beeswax 4 · 0⤊ 0⤋
No, just got to find a broker to go with it. You could lose alot of money if the short sell is no good and broker wants their money back.
2006-11-19 13:05:54 · answer #3 · answered by Screaminfiero 3 · 0⤊ 0⤋