Keyword: Short Selling

Involves borrowing shares from a broker, selling them on the market, and then buying the stock back when the price falls. The buyer reaps the profits from the difference between the two prices, less commission, dividends and interest. If the stock rises in price, the “shorts” lose. When investors are selling a stock short, they’re betting that it will go down in price soon. But heavy short selling indicates that a stock will also be heavily re-bought. This will stabilize the price and possibly even generate some serious upward momentum. The ratio of short shares to total volume of shares can be a very revealing indicator. When a stock shows a high ratio of short positions, this may well suggest that the stock will be heavily bought in the near future. If it goes up in price, brokers will call in short positions to realize a profit. If the share price falls, the “shorts” will purchase the stocks to realize their own profits.

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