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how the gears turn

Buying and Selling Stock

How long and short shares work
Long shares represent:
Borrowed shares of stock
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A profitable stock position
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A long term investment
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Ownership of an asset
Correct. Long shares are shares that you have purchased.
Short shares profit when...
Dividends are paid to the shareholders
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The product increases in value
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The product decreases in value
Correct. A short-seller sells borrowed shares while they believe prices are high, and profits if they can buy replacement shares at a lower price.
The product retains a consistent value
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True or False: Short-sellers must pay interest on their borrowed shares.
True
Correct. Interest rates will vary depending on the availability of shares. Easy-to-borrow shares will be less expensive than hard-to-borrow shares.
False
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What is a dividend?
A distribution of profits to the shareholders
Correct. Some products offer periodic dividends while others do not distribute dividends at all. When dividends are paid, the amount is removed from the price of the shares. It is up to investors to choose whether or not to reinvest their dividends in the stock
A stock position using borrowed shares
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A type of product that expires
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An asset with a fixed rate of return
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True or False: Dividends should be avoided by short-sellers because they will result in losses
True
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False
You are correct! Short-sellers should be aware of dividends because they are responsible for paying them, but since the stock price is reduced by the same amount, the net change in P/L due to the dividend is $0.

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how the gears turn
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