How Do You Short a Stock?

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When someone shorts a stock, they are borrowing from a broker to buy stocks for a given time, upon which they will sell the stocks and pay the broker back. Find out why it's important to understand the language when making an investment with help from a licensed financial planner in this free video on the stock market and investing.

Part of the Video Series: Stock Market
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Video Transcript

My name is Bill Rae. I'm with Alumni Financial Services. I've been in the business in the finance world for well over 20 years. The question you asked is how do you short a stock? That's an excellent question. First of all, let me just make sure we both understand what a stock is. A stock in it's generalist form is simply a piece of a company that you own. In other words if I had a company and I needed money for growth or to buy equipment, I have two ways of doing that. I could borrow money either from a bank on a loan or a bond if you will, or I can sell you a piece of my company, that's a stock. There are many ways to hold that you need to look into later. But suffice to say that's what a stock is. Now when you're talking about shorting a stock, again we're not going to give you investment advice here, you need to speak to a licensed person in your state. Many brokerages are available for this and many of them are licensed in all states. So the general concept of a short if you will, is that you are borrowing from your broker if you will or your account, to buy stocks until such a time that you sell it and then pay it back. That's it in it's simplest form. Again, not giving investment advice, not telling you whether this is wise or not, we urge you to seek out a licensed professional. There are many vehicles out there that you can earn money. Many don't even carry the risks. As in all type of investments or all type of agreements, we urge you to understand what it is that you're signing. Do you understand what's required of you? Do you understand the language? Do you understand when and how you are to get your money back? And more importantly, do you have an understanding of reasonable returns you should expect? As in all things that are investment, it does carry an inherent risk of possible loss of all your income. So again, we urge you to seek outside counsel. As always my name is Bill Rae, I'm with Alumni Financial Services and were here to help you build wealth.


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