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Saturday, January 06, 2007 7:54:02 AM
In "short selling," traders sell stock they do not own by borrowing shares from a broker that must to be returned at a later date. If the stock price goes down, the short sellers buy stock in the market at a lower price, return the stock to the broker and make a profit. By selling first and buying later, short sellers benefit from stock prices going down instead of up. If there is a lot of short selling, supply of our shares may exceed demand for our shares, causing the stock price to go down. In other words, short sellers can make money by selling enough stock short to artificially increase the volume of selling and drive down the market price. In the case of the "short selling" originating outside of the United States, it is possible that the "balancing shares," were not even properly borrowed from a broker. This is sometimes referred to as "naked shorting."
Short Sellers Borrow Stock from Shareholders Like You. Where do the traders get the stock to borrow? Ironically, whether you know it or not, they probably have been borrowing shares from shareholders like you. If your shares are registered in your broker's name or in "street name" instead of yours or are held in a margin account, your SLJB shares may have been loaned out to these "short sellers." In other words, if your SLJB shares are registered in your broker's name or being held in a margin account, your shares are available to be loaned out to short sellers.
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