Sell Short?
When you sell short a stock do you have to buy it back? I mean is there a time limit to buy it back?
Why don't I sell wallstreet and only buy back the stocks that crash and keep the others in limbo forever.
2007-04-12 20:23:00 · 6 answers · asked by Tasm 6 in Business & Finance ➔ Investing
What the others here have told you is true. Since you have to post margin, you would have to tie up your own money to keep a short position open.
Thee are a couple of other things, though. In order to sell short, you have to borrow stock. The cost of borrowing is usually covered implicitely by the normal transaction costs. But if you were borrowing for a long term, the brokerage might make that cost explicit.
The final thing involves dividends. If the company pays a dividend -- then you have to pay that dividend to the person you borrowed the stock from. This can get very costly.
2007-04-13 06:52:23 · answer #1 · answered by Ranto 7 · 0⤊ 0⤋
Yes, you do need to buy it back. You have to post margin initially when selling short. If the stock you are shorting increases in price (you are losing on the trade), you will be forced by your broker to repost margin up to a certain level. Therefore, staying in limbo does not work since you lose money with the margin reposting. But yeah, the idea is to buy back when in the black.
2007-04-12 20:42:02 · answer #2 · answered by desparado11 1 · 0⤊ 0⤋
there is no time limit but the broker will only lend you so much money, and it depends on the price of the stock.
If the price of the stock goes up, your loan amount goes down and you get a "margin call" from the broker telling you to put more money into your account to meet the loan. if the stock keeps rising, you will keep having to put money into your account and pay interest, plus you will still have to buy the stock back at a higher price, so you will lose ALOT of money.
There is no set date on when you have to buy the stock back, but the longer you wait, the more interest you get charged, and if the stock rises, the higher the price you buy the stock back at.
2007-04-12 22:05:13 · answer #3 · answered by Sens Enforcer 4 · 0⤊ 0⤋
My longs can go on for 20 years, but my shorts usually last 2hrs.
2007-04-13 02:22:31 · answer #4 · answered by Anonymous · 0⤊ 0⤋
1) Yes.
2) No.
3) Because your credit is not unlimited.
2007-04-13 14:03:57 · answer #5 · answered by Anonymous · 0⤊ 1⤋
This question has been answered well enough above...but I like the way you think! Good luck!
2007-04-14 17:52:48 · answer #6 · answered by StockJock 4 · 0⤊ 0⤋