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Author: Kratze Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 44594  
Subject: Basic Shorting Principles Date: 8/14/1998 8:58 PM
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So sorry for the boneheaded naivity behind this
question, but I'm confused. I understand much of
what I read about shorting (in MF Investment Guide), but not quite all... maybe I missed something.
Okay, here's what's not clicking. The broker borrows X number of dollars against your security.
Now, she/he purchases stock and immediately sells it.
Does the amount made off the sale (minus fees) get
put into an account in your name, or is it used to repay what you now owe your broker (price of stock purchased on margin)? If it's in your name, and you rebuy (then immediately resell?) the stock, why do you get to pocket the difference? Don't you owe your broker's company the original price of the stock still? After all, the broker's made commissions, but if you keep the difference, why doesn't the broker's company lose the portion of the original loan, which you kept after having borrowed the cash which made it possible?
Does my question even make sense? I suppose you guys get awful tired trying to explain this to newcomers. If so, awful sorry. But if anyone has time, pleeese explain this to me...
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