when you sell short is there a time limit?

Question

So I only have a jist of what sell short means, but I read on another person's answer to a question on what 'sell short' means, that the person who loaned out the share doesn't even know he loaned it out (it's all computerized), so what if right after it's loaned out, the owner wants to sell it?

When does the the person who borrowed the share have to return it?

Also how do you place an order for a short sell? Theres a button for it right below limit and stop, so do I just click that and put in a price. Then after that does the system just borrow stocks for me and them immediatly sell them, and then I choose when to buy them back?

Thanks! sorry if my question is really confusing.

Answer 1

(1) There is no time limit. I have had a short position for over a year before closing it.

(2) With any short stock position there is always a risk that you will have to close the position at any time, although this risk is usually very small. If enough people at your brokerage sell their shares of the stock that the brokerage no longer has shares it can borrow, you will have to close your short position at whatever the price of the stock is at the time.

(3) Every brokerage has its own procedure for entering a short sale, so I cannot say with any certainty what your brokerage requires. If your online order form has a way to indicate a short sale I would think that would be all you need to do to open the short position. To close your position you simply need to use a "buy to close" or "buy to cover" transaction.

There are a few more things about selling a stock short I want to make sure you understand.

(1) You must have a magin account and it is important to monitor how much magin you have available. If you exceed your magin limit because the stock goes up, because the value of other holdings in your account go down, or because you withdraw funds, you will get a margin call.

(2) If the stock pays dividends, you will be responsible for paying the dividends to the individual who from whom the stock was borrowed. (Your broker take the money out of your account automatically.)

(3) Unless you are a big enough player, you will not receive any interest from the money you receive from the short sale. Instead of putting the money in a money market account it will be put into what most brokers call a short account. The amount in the short account will be adjusted as the stock price changes.

(4) A short sale can only occur on an up-tick. So, if a stock is selling at $50 and you put in an order to sell it short for $49 or better, your order will not be filled if the stock drops below $49 before there is an up-tick.

(5) When you close a short position any gain or loss realized will be considered a short term capital gain or loss by the IRS regardless of how long the position was open.

Answer 2

Normally, there is no time limit to buying the shares back after short selling. If the stock gains too much in price and exceeds your margin account limits, then the broker may opt to buy it back for you so as to ensure that you have enough funds to cover the short sale.
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Answer 3

now remember on short selling you are betting that the stock WILL GO DOWN. Its risky but it is a tactict i'm looking at as well. Now a major requirement in this is your buying power and how much you have on margin. If you are wrong on the stock you'll get your money taken away.