# Ever SHORTED a Stock?

**URL:** <https://boards.straightdope.com/t/ever-shorted-a-stock/230528>\
**Category:** Factual Questions\
**Created:** [February 22, 2004, 8:04pm UTC](https://boards.straightdope.com/t/ever-shorted-a-stock/230528 "2004-02-22T20:04:58Z")\
**Posts on this page:** 4\
**Page:** 1

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**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\
**Post date:** [February 22, 2004, 8:04pm UTC](https://boards.straightdope.com/t/ever-shorted-a-stock/230528/1 "2004-02-22T20:04:58Z")

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I’m sensing a drop in a stock, and would like to profit from its drop. How do you proceed? How long should I hold the position? 🆒

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**Author:** ![x-ray\_vision](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/x-ray_vision/32/351_2.png) [@x-ray\_vision](https://boards.straightdope.com/u/x-ray_vision)\
**Post date:** [February 22, 2004, 9:30pm UTC](https://boards.straightdope.com/t/ever-shorted-a-stock/230528/2 "2004-02-22T21:30:23Z")

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Are you using discount internet broker such as Ameritrade? If you are, you need to apply for a margin account if you don’t already have one.

How long should you hold the position? You’re kidding right? If anyone here knows when a stock will stop falling, \*_ralph_ and I would like to know.

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**Author:** ![Arturius](https://avatars.discourse-cdn.com/v4/letter/a/ecc23a/32.png) [@Arturius](https://boards.straightdope.com/u/Arturius)\
**Post date:** [February 22, 2004, 10:09pm UTC](https://boards.straightdope.com/t/ever-shorted-a-stock/230528/3 "2004-02-22T22:09:11Z")

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Stock prices are relative to value.

Stocks arent neccesarily good buys because they just dropped in price or went up in price.

It all depends if the price you pay for the stock is good value considering what the company can do later on.

You have to look at why the stock is dropping; if its dropping below what its worth on the grand scheme of things, then its a good oppourtunity to buy, and profit, because inevitably, baring some disaster, the stock will return to its median position or better.

But if its merely reshuffling to its median price (its correct value), then you wont be able to profit, and should have profited by buying the stock before it went up.

So decide whether its a rational or irrational drop, if its a irrational, buy the stock after it drops, and it should rationalise and return to its correct value.

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**Author:** ![Just\_Ed](https://avatars.discourse-cdn.com/v4/letter/j/e19b73/32.png) [@Just\_Ed](https://boards.straightdope.com/u/Just_Ed)\
**Post date:** [February 22, 2004, 10:12pm UTC](https://boards.straightdope.com/t/ever-shorted-a-stock/230528/4 "2004-02-22T22:12:12Z")

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As mentioned, you’ll need a margin account (actually a “short” account, which is a sub-category). When to buy it back is the key question (obviously), and is something you should definitely discuss with your financial consultant (otherwise known as “broker” 😉 )

Regarding a short sale itself, what you are actually doing is selling shares you do not own in anticipation of buying them back at a lower price. Something you should know that may not be clearly presented to you by your FC (or glossed over in fine print) is the potential for loss on a short sale trade is unlimited - because the price of the stock you have shorted may go _up_ instead of down, meaning you lose money when you buy it back. Also, when you sell short, your broker must ordinarily borrow those shares from another firm in order to make delivery on your trade. If the lending firm demands delivery of those “borrowed” shares, your account will be subject to something called a “buy-in execution”, which simply means you may buy the shares back before you wanted to do so (regardless of the price).