/biz/ - Business & Finance

>>3689248
INVESTOPEDIA SHORT SELL EXAMPLE,

For example, assume that Company XYZ is trading at $100 per share and an investor believes the price will decline over the next six months. He decides to short-sell 100 shares of Company XYZ. The transaction is initiated and the investor sees $10,000 cash posted in his account, as well as a negative $10,000 position in Company XYZ. Very often, if not all the time, this cash is not accessible and remains frozen in the account. To borrow the shares for six months, the investor agrees to pay 8% interest.

Six months later the shares are priced at $75 per share. The account now looks as follows:

Short sale proceeds = $10,000

Short position in Company XYZ = $7,500

Margin interest due = $800

AT THIS POINT, the investor purchases 100 shares at market price and returns them to the broker. His profit is:

Profit = $10,000 - $7,500 - $800 = $1,700

>mfw he NEVER OWNED THE STOCK BEFORE THAT
>mfw "you can't sell what you don't own"