30. Hedge Funds 2: What is Short-Selling?

Short-selling is often spoken about, particularly in the context of hedge funds - this brief video explains what this is.

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[NUMBER4940]

selling something that is not even owned. that is confusing at first, but then again, so is buying something with a credit card. i suppose the person who borrows then short sells relies on the ignorance of someone else for profit.

[savingandinvesting]

@NUMBER4940 It can be their ignorance of course, but it is also very often a difference in views, timeframes or for a hedge. Neither the short-seller or the buyer is guaranteed to be right and the short-seller of course loses money if the stock rises. A lot of short-selling is related to hedging other long (bought) security positions. Hope that adds to subject, Michael.

[bonfirejovi]

Why is this a bad thing? I don't see how this is any worse than buying low in hope that you can sell high. Also what is usually the maturity for borrowing these securities i.e. when do you have to pay back the borrower?

[savingandinvesting]

@bonfirejovi Most liquid stocks can be borrowed for a long time (for the short-seller to keep short position) - borrow fees just have to be paid for the time that the security is borrowed. Sometimes investor goes long one stock and short something else as hedge and hedge is kept in place for a very long time. When there is a shortage of stocks available to borrow then the stock might be 'recalled' and the short-sale might not be able to be kept but this is exception - I hope that helps.

[XxxGT0xxX]

pertaining dividends and short selling. when one shorts a company and the time comes around when a company distributes the dividends back to the shareholders, who retains the value of the dividends, the one who shorts the stock or the one who lends it out? thank you

[savingandinvesting]

@XxxGT0xxX The one who lends (lender) it out receives amount equal dividend from the short-seller. The lender might not even be aware that this particular stock has been lent. The short-seller does not receive the dividend as not long the stock and in fact has to pay an amount equal to the dividend (part cost of being short). The new buyer of the shares (who bought them from the short-seller) is the holder of record and receives the dividend directly from the company. Hope that helps, Michael.

[davidchavez12364]

GREAT !! You and those like you make youtube great. thanks for sharing

[ethasorice]

I just found this video searching YouTube, great videos!

[actor2120]

HA! that was awesome. I Subscribed! :)

[10243406]

Thanks alot. !!!!

[bonfirejovi]

@crck4488 Why is this a bad thing? How is betting on someone winning any better than betting on someone losing?