[b]What Is A Short Sale Of Stock?[/b]
Take a look at the paid2trade graphing tool to see how many shares are shorted for almost any stock at [url]http://www.paid2trade.com/viewtopic.php?f=15&t=91[/url]
A short sale is the sale of a stock that the seller does not own and any sale that is consummated by the delivery of a stock borrowed by, or for the account of, the seller. In order to deliver the stock to the purchaser, the short seller will borrow the stock , typically from a broker-dealer or an institutional investor.
The short seller later closes out the position by purchasing equivalent stock on the open market, or by using an equivalent stock it already owned, and returning the borrowed stock to the lender. In general, short selling is used to profit from an expected downward price movement, to provide liquidity in response to unanticipated demand, or to hedge the risk of a long position in the same stock or in a related stock.
From the traders point of view, the biggest difference is the timing of the transactions. Instead of buying first and then selling, the sale takes place before the buying. Unlimited losses can happen when short selling, although from a practice view point, unlimited losses is more theory than real risk relative to owning stock that in theory can go to zero very quickly. Stocks have been known to go from under $1 to well over $100 quickly, and "unlikely" events seem to happen more often than most expect.
Short selling is helpful to the marketplace and to all market participants. There are many reasons including added liquidity (short sellers are often the majority of buying during quick falls in stock), keeping the marketplace "honest" (short sellers are often the first to spot irregularities in reporting by a company), a cooling force when markets get over-heated (like the tides of the ocean, unbridled euphoria over the flavor of the day never seems to stop, short selling keeps the bubbles from getting even bigger).
From the SEC website http://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm
