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Short Sales

Short Sales - 4-1Short Sales•Short sales–Sell...

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Unformatted text preview: 4-1Short Sales•Short sales–Sell overpriced stock that you don’t own and purchase it back later (hopefully at a lower price)–Borrow the stock from another investor (through your broker)–Can only be made on an uptick trade–Must pay any dividends to lender–Margin requirements apply4-2Margin TransactionsYou believe that the stock of Cara Corporation is overpriced and decide to sell 1,000 shares short at $80. You have posted 50% margin as required. If the stock price drops to $70 per share, what will be the percentage margin on your account?•The Value of Your Equity–Sales of the stock: $8,000–Money deposited:+$4,000–The Value of the stock owed:-1000P•Percentage Margin($8,000+$4,000-1000P)/1000P= ($8,000+$4,000-1000 x $70)/1000 x $70=71%4-3Exchange Market Makers in U.S.•Spet is exchange member assigned to handle particular stocks–Has two roles:–Broker to match buyers and sellers–Dealer to maintain fair and orderly market•Spet has two income sources–Broker commission, without risk–Dealer trading income from profit, with risk4-4...
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Short Sales - 4-1Short Sales•Short sales–Sell...

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