HopefullyInLawSchool
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LSDefine
Simple English definitions for legal terms
sale short
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A quick definition of sale short:
Sale is when someone gives something to another person in exchange for money. It can be a physical object or a title to something. There are different types of sales, like when someone buys something with cash or credit, or when someone sells something they don't actually own yet. Sometimes sales can be tricky and not fair, like when someone tries to cheat others by pretending to sell something but not really giving it away.A more thorough explanation:
Definition: A sale of a security that the seller does not own or has not contracted for at the time of sale, and that the seller must borrow to make delivery. Such a sale is usually made when the seller expects the security's price to drop. If the price does drop, the seller can make a profit on the difference between the price of the shares sold and the lower price of the shares bought to pay back the borrowed shares.
Example: John believes that the stock of XYZ company will decrease in value. He decides to sell short 100 shares of XYZ company at $50 per share. John does not own the shares, so he borrows them from his broker and sells them in the market. If the price of the shares drops to $40 per share, John can buy 100 shares at $40 to pay back the borrowed shares, making a profit of $1,000 ($50 - $40 = $10 profit per share x 100 shares).
This example illustrates how a short sale works. John sells shares he does not own, hoping to buy them back at a lower price to make a profit. Short selling can be risky because if the price of the shares increases instead of decreasing, the seller will have to buy them back at a higher price, resulting in a loss.