Short Sales

A short sale is generally the sale of a stock you do not own. Investors who sell short believe the price of the stock will fall. If the price drops, you can buy the stock at the lower price and make a profit. If the price of the stock rises and you buy it back later at the higher price, you will incur a loss.

When you sell short, your brokerage firm loans you the stock. The stock you borrow comes from either the firm’s own inventory, the margin account of another of the firm’s clients, or another brokerage firm. As with buying stock on margin, your brokerage firm will charge you interest on the loan, and you are subject to the margin rules. If the stock you borrow pays a dividend, you must pay the dividend to the person or firm making the loan.

The rules of the SEC and the National Association of Securities Dealers, Inc. place restrictions on when you can sell. You can read about these restrictions in our search key topic, Short Sale Restrictions.

You can find out the total number of shares that have been sold short on a monthly basis in a particular company by visiting the New York Stock Exchange's Press Room.  Click "Press Releases" on the left-hand navigation bar, and then select "Short Interest" in the drop-down category box. You also can learn the short interest for individual stocks that trade on the NYSE, American Stock Exchange, and Nasdaq by visiting the Nasdaq's website. Simply enter the ticker symbol for the company in the “Quotes” box and click "GO". In the pull-down box, replace "FlashQuotes" with "Short Interest". There also are many commercial websites that offer this information. If you enter the words "short interest" into most Internet search engines, you'll quickly find websites that can provide this information.

For more information about selling short, please read our search key topic on Selling Short Against the Box.