Series 14: 4.3.3. Short Positions In Margin Accounts

4.3.3. Short Positions in Margin Accounts

A short sale or “selling short” is the sale of borrowed securities in anticipation of a price decline with the understanding that the securities must be bought back and returned to the lender. Investors sell short expecting that a decline in the market price of the stock will allow the short seller to buy back these shares at a lower price and pocket the difference. The risk is that the stock price will rise rather than fall and that the customer will eventually have to buy back the stock at a loss to return the borrowed securities.

All short sales must be executed in a margin account and be fully collateralized. Because of the riskiness of short selling, initial margin requirements are set at 150%. Short selling is often completed in a day, but positions can remain open fo