4 ms·

>Person A has 1 share of company Y. Person B borrows 1 share of company Y from person A, and then sells it into the market. This is called a short sale. But per

• jameshart 6y ago
  At a later date, Person B returns a share to them. And B pays them for the privilege of borrowing the share in the first place. Person B thinks that it will cost less to buy that share in the future than the money they make from selling the share today, which is why they asked A to lend them the share in the first place. They plan to buy a cheaper share and give that back to A. A doesn’t care if they get back their original share, they just want to get a share back.
  • stonemetal12 6y ago
    So rather than borrowing it is more like renting?
• mklauber1 6y ago
  They get interest from Person B, and when the short contract is up, they can force Person B (or more accurately their broker who passes the price on) to buy a replacement stock, regardless of the price. Alternatively, they can attempt to open another short contract, paying more interest to have continue to borrow the stock. Sooner or later, however, person B is legally and contractually required to to return an identical share to person A.
  • jjav 6y ago
    > when the short contract is up Options are contracts which expire. A short position is not that, it doesn't have any expiration date. It can be untenable to maintain that short position forever due to costs, but that's a different discussion.