Jeff Randall On The Futures Of Short Selling
JEFF Randall tells his readers what a short sale is and how not to confuse one with a future.
Put simply: I know that you want to buy 100 shares in Jayar Junk. The shares are trading at £10 each. We strike a deal at that price, and I promise to deliver them in one week’s time. At this point, I still don’t own any Jayar Junk. No matter, my buddies at the Rumour Mill are about to go to work.
Through a series of postings on dodgy websites, anonymous emails and loose talk in dealers’ watering holes, we spread the story that Jayar Junk is running out of readies. Very soon the shares start falling, to £9, £8, £7. In angst-ridden markets, there is no bottom. When they hit £5, we buy 100.
Bingo! You are contracted to take them from me for a total of £1,000. My cost is just £500. I double my money and you are ripped off. It’s no more complicated than that.
Says Tim: “That looks more like a future to me than a short sale. A short is where you borrow the stock and sell it, then buying it back at the new lower price and return it to the original owner, no?”
Tim’s right. If only Mr Randall had looked at his own newspaper’s website:
Short-selling is the practice of selling borrowed shares in the hope of repurchasing them later at a lower price. This is done in an attempt to profit from an expected decline in the price of the shares.
Mr Randall makes it sound easy. It’s not. It’s high risk – which is why you can make high profits.
Posted: 21st, March 2008 | In: Broadsheets, Money Comment | TrackBack | Permalink
