Short Sale Stocks

A short sale in the stock market is very different from a real estate short sale. Investors are sometimes confused what a real estate short sale is because a real estate short sale is not as widely known as a stock short sale. The same term, short sale, is used in real estate investment and in stock market investing. A real estate short sale is when a real estate investor negotiates with the bank to buy a property in foreclosure for less than what the bank is owed.

A stock market short sale is generally the sale of a stock the stock investor does not own. Stock investors who sell short (hence the word short sale) believe the price of the stock will fall.

To short sale stocks

If the stock price drops, the stock market investor can buy the stock at the lower price and make a profit on the stock. If the price of the stock rises and the stock market investor buys it back later at the higher price, and he or she will incur a loss.

Short selling

When a stock market investor sells short, the brokerage firm loans him or her the stock. The stock the stock market investor borrows comes from either the firm’s own inventory, the margin account of another of the firm’s clients, or another brokerage firm.

As with buying stock on margin, the stock investor is subject to the margin rules. Other fees and changes may apply. If the stock he or she borrows pays a dividend, he or she must pay the dividend to the person or firm making the loan. There are many rules and regulations governing the practice of stock short sales.

Stock short sales and Real estate short sales

When researching the topic of short sale, almost 90% of the materials out there on a short sale is about how to short sale stocks, not about real estate short sale. So, beware of the materials you read about short sales, you could end up wasting time on short sale strategies that are not related to real estate short sale at all.