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Shortsale

A short sale is a transaction in which a investor sells a security that they do not own, with the intention of buying it back later at a lower price to realize a profit. In a short sale, the investor borrows shares of a stock from a brokerage firm, with the understanding that they will be returned to the firm at a later date.

In order to execute a short sale, an investor must have a margin account and must meet certain margin requirements set by the firm. The investor is typically charged interest on the value of the borrowed shares.

Short selling is a legitimate and legal trading strategy that can be used to hedge against long positions or to bet on a decline in a security's price. However, it can be risky, as the potential losses are theoretically unlimited if the price of the security rises.

In the US, short selling is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Among other things, rules governing short selling prohibit "naked" short selling, which is the sale of a security without first borrowing the security or entering into a bona-fide arrangement to borrow the security.

It is important to note that short selling can contribute to market volatility and may exacerbate declines in security prices. For this reason, some people have called for more stringent regulation of short selling, while others argue that it provides important benefits by increasing liquidity and efficiency in the markets.

    Shortsale index