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in Figure 10.7. It shows the same stock but on a much less stressful ride down! |
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Now that you can read a price chart, there are still three mysteries about executing short sales: |
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1. Where do you actually get these shares you are selling if you don't own them? You know you have to deliver the shares you are selling in just a few days. Where will you get them? |
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The answer is that you are borrowing them from other customers of your broker or its clearing firm. Little did you know that when you opened your account and signed several agreements, one contained a little-noticed, unexciting provision that creates the mechanism to let all of this happen. You can borrow shares from other customers of the broker/clearing firm and they can borrow your shares. Everyone wins! |
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One note: some stocks are not "borrowable" (there are no shares available for you to use for a short sale). Generally these are low priced (under $5) or very thinly traded stocks. All direct |
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Figure 10.7
Sample Price Chart with Smooth Decline
Copyright 2000, TradeCast® Ltd. |
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