Short Selling
Selling borrowed shares hoping to buy them back cheaper; profits when the price falls, loses without limit when it rises, and must be done in a margin account.
The SIE loves to test short selling through Regulation SHO: the order ticket must be marked “short” (not “long”) under the order-marking rule, and before execution the firm must reasonably believe it can borrow the shares — the pre-trade “locate” requirement. The classic trap is confusing this locate with the now-defunct uptick rule; the old plus-tick test was eliminated in 2010 and replaced by the alternative uptick rule (Rule 201) circuit breaker, which restricts short sales only after a stock falls 10% or more intraday from the prior close, lasting that day and the next (some older question banks still drill the original uptick rule). Expect a maintenance-margin question too: short positions require 30% of market value, versus 25% for longs.
Watch the order-type pairing: a short seller’s protective order is a buy stop above the market, mirrored against a long’s sell stop below — flipping them is the most-missed Stop Orders point. Shorting also depends on the optional loan-consent agreement, the one margin form a customer need not sign, which lets the firm lend out the customer’s shares to other short sellers.
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