Question

What is Short Selling in stock market lingo?

• A. Selling the shares which you do not own.
• B. Selling a share after owning it for a short period of time.
• C. Selling all the shares in your booty which are not productive.
• D. Selling of shares which are quoted for a short period of time.

Answer 1

The Correct Option is A

Short selling is a trading strategy in the stock market where an investor sells shares that they do not currently own. This is done with the anticipation that the price of the shares will decline in the future, allowing the investor to buy them back at a lower price and profit from the difference. Here's how short selling works:

1. An investor borrows shares from a broker, paying a fee for this service. The shares are not owned by the investor at this point.
2. The borrowed shares are then sold on the open market at the current market price.
3. If the stock price drops, the investor buys back the same number of shares at the lower price.
4. The shares are returned to the broker, effectively closing the short position. The profit is the difference between the selling price and the buying price, minus any fees or interest charged by the broker.

The main goal of short selling is to profit from a decline in a stock's price. However, it's important to note that this strategy is risky, as there is no limit to how much the price of a stock can increase, potentially leading to significant losses.

The correct answer from the given options is: Selling the shares which you do not own.