 | What is the definition of Short Sale?
Short selling is a practice of selling a trading asset in order to benefit from fall in prices. In forex, it is known as “going short”.
|  | TradersLaboratory decodes Short Sale
Short selling is a practice that is carried out in all financial markets, but carries a significant amount of risk when it is done outside the forex market. Indeed, short selling outside forex is a controversial practice. In forex, short selling simply means selling one currency against another in order to profit from the anticipated fall in value. Outside forex, short selling involves borrowing an asset from a broker and offering it for sale, and if the price falls, the trader can buy that security back and return to the broker, profiting from the price differential.
The controversy in this practice was typified in 2008 as the collapse of Lehman Brothers hit stock markets. Unscrupulous traders circulated rumours of further collapses, triggering massive sell-offs. Many of these traders, who already had short-sale positions on these assets, profited from the steep price falls, forcing the Securities and Exchange Commission to place a ban on naked short-selling As such, short-selling is only allowed when the market is on an uptick or is in a neutral mode. |
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