What Is Short Money in Stock Market?
In a traditional stock trade, an investor purchases stock with the hope that the stock increases in value. Purchases of this type, known as "going long," rely on the well-known mantra of "buy low, sell high."
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Going Short
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In another type of stock trade, the investor reverses the process by selling the stock first, hoping the value depreciates. This type of transaction is called "going short." The dollar sum of shorted stock in a company or a market is sometimes called "short money."
Opening a Short Position
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An investor wishing to short-sell must sell stock he does not yet own. To accomplish this, he borrows stock from a brokerage house, then sells that stock on the market.
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Closing a Short Position
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To close a short position, the investor purchases or otherwise obtains stock. She provides these shares to the lending brokerage as repayment for shares she borrowed earlier. In essence, the investor follows a "sell high, buy low" mantra, reversing the standard process.
Federal Requirements
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Any short sale must satisfy Federal Reserve requirements. The minimum requirement is 50 percent of the current price of the stock being shorted.
Uptick Rule
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The "uptick" rule specifies that a stock's price must first move up in value before short sales can be executed. Major markets require that this rule be followed, including the NYSE, Amex and Nasdaq.
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References
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