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What are shorts?

How are they used?

How do they effect stocks that I might own?

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Greetings,

What are shorts?

I'll assume you mean the definition with regard to the stock market rather than the type of clothing called shorts. Shorts are either short positions or people that hold short positions. A short position is where someone sells borrowed stock with the intention of buying it back and a lower price.

How are they used?

I think it is best to think of shorts are being the reverse of a long position. In a long position you buy the stock and then sell the stock, collecting any dividends along the way. In a short it is reversed so that you sell the stock and then buy it back usually, remembering to account for any dividends along the way. Shorts are used on margin accounts and there are rules about what can be shorted and when you may be forced to cover similar to the case where if bought a stock on margin and it drops there is the possibility of a margin call.

How do they effect stocks that I might own?

When a lot of folks short a stock this could cause a bit of a dip, and similarly a rally could happen if they are forced to cover.

http://www.fool.com/News/mft/2004/mft04012116.htm is an article with a little more on shorts. http://invest-faq.com/articles/trade-short.html also has some more details on a short.

Regards,
JB
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Hi folks

Just popped over the pond for a looksee (normally hang out on TMF - UK)

Another aspect of shorting and from which I and many others have suffered in recent times is where UK companies are listed on the Berlin Stock Exchange. http://www.berlinerboerse.de/index.html?LANG=en&debug=

This appears to be in order to make an additional market to the advantage of shorters and where the actual company doesn't even know it's been listed! To that end there is an enquiry in progress at the moment as it appears that a company cannot demand a de-listing.

To have a look you need to register but it is free and you can elect for an English version so you don't need to learn German!

FWIW I still don't fully understand the reasoning behind this and how the exchange is funded as normally it costs a company that wishes to be listed on an exchange a fee for such. eg our AIM for start up companies charge a minimum of 86,000 GBP per year and the LSE costs a good deal more.

If you see a company being shorted to death it maybe worth looking to see if it's been listed on the Berlin exchange.

If you are already aware of this anomoly then please excuse my interruption.

Regards

mt
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a detailed explanation of short selling is at:
http://www.investopedia.com/university/shortselling/
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