By Doug Hagmann —— Bio and Archives September 27, 2008
Comments | Print This | Subscribe | Email Us
The Securities and Exchange Commission, acting in concert with the U.K. Financial Services Authority, today took temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market and strengthen investor confidence. The U.K. FSA took similar action yesterday.In its most basic definition, short selling (or selling short) is the act of a person or entity selling a security instrument, such as a stock, expecting, for whatever reason, that the price of the security will decline. For example, a person sells the stock today to a buyer at the current price, buying the stock back later at the anticipated reduced price, keeping the difference as profit. Because a person does not actually own the stock they are selling, such transactions are conducted through securities lenders, such as Goldman Sachs, for example. The concept of short selling is rather simple: the greater the decline of the particular stock, the more money the seller stands to make in pure profit. The inverse is also true: should the value of the stock rise, the seller would then lose money on the transaction. Perhaps the biggest factor that one must keep in mind about selling short is this: the profit is limited but the loss is unlimited. Therefore, the short seller is taking an exceptional risk when engaging in such transactions -an important fact as you read on. More...
Copyright © Douglas J. Hagmann and Canada Free Press
Douglas J. Hagmann and his son, Joe Hagmann host The Hagmann & Hagmann Report, a live Internet radio program broadcast each weeknight from 8:00-10:00 p.m. ET.
Their new website is The Hagmann & Hagmann Report.
Douglas Hagmann, founder & director of the Older articles by Doug Hagmann