Short selling (stocks): Difference between revisions

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Short selling (stocks) (view source)

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+{| style="float:right; margin-left: 10px;
+|
+{{#mermaid:graph TD
+subgraph "STEP 2. BUY TO CLOSE"
+SS1[SHORT SELLER]--MUST RETURN THE BORROWED SHARES-->2[BUYS THE STOCK AT NEW PRICE ex. $80]--MUST RETURN THE STOCK TO-->SO2[ORIGINAL STOCK OWNER]
+end
+}}
+|-
+|{{#mermaid:graph TD
+subgraph "STEP 1. SELL TO OPEN"
+SO[STOCK OWNER]--LOANS TO SHORT SELLER usually for a fee-->SS[SHORT SELLER]--SELLS THE STOCK-->1[KEEPS THE CASH ex. $100 per share]
+end
+}}
+|-
+|}
 "Short selling" of stocks is a way to make money from a decline in price of a stock over time.
@@ Line 7: / Line 23: @@
 ## usually from a stock broker
 # "Sell to open"
-## = Sell the stock that you have borrowed at current prices
 # "Buy to close"
 ## = Buying the stock back later at a cheaper price (hopefully)
+## the Short Seller
-* Steps  1. borrow stock and sell at current price  2. buy back at certain date at present value  3. pocket difference
+* Steps
+# Sell to Open:
+## borrow stock and sell at current price
+### the borrowed stock is owed back after a period of time
+### sell the borrowed stock at current price
+### keep the cash
+# Buy to close
+## the stock must be returned to the original owner after a period of time.
+## so the Short Seller must buy the stock at the new price
+## then return the shares to the owner
+## the difference between the stock price at "Sell to Open" versus "Buy to close" = profit or losss
-{{#mermaid:graph TD
+'''Profit scenario''':
+{{#mermaid:graph LR
-subgraph "STEP 2. BUY TO CLOSE"
+subgraph "PROFIT"
-SS1[SHORT SELLER]--MUST RETURN THE BORROWED SHARES-->2[BUYS THE STOCK AT NEW PRICE ex. $80]--MUST RETURN THE STOCK TO-->SO2[ORIGINAL STOCK OWNER]
+[SELL TO OPEN]--SELLS BORROWED SHARES FOR $100-->4[BUY TO CLOSE]--BUYS BACK STOCK AT NEW PRICE<BR>OF $80 TO RETURN TO OWNER-->1[PROFIT = $20]
 end
-subgraph "STEP 1. SELL TO OPEN"
-SO[STOCK OWNER]--LOANS TO SHORT SELLER usually for a fee-->SS[SHORT SELLER]--SELLS THE STOCK-->1[KEEPS THE CASH ex. $100 per share]
-end
 }}
+'''Loss scenario''':
 {{#mermaid:graph LR
 subgraph "PROFIT"
-[SELL TO OPEN]--SELLS BORROWED SHARES FOR $100-->4[BUY TO CLOSE]--BUYS BACK STOCK AT <BR>NEW PRICE TO RETURN TO OWNER-->1[PROFIT = $20]
+[SELL TO OPEN]--SELLS BORROWED SHARES FOR $100-->4[BUY TO CLOSE]--BUYS BACK STOCK AT NEW PRICE<BR>OF $120 TO RETURN TO OWNER-->1[LOSS = $20]
 end
 }}