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The hidden risks of short selling

  • By James Clunie,
  • Active Trader Magazine
  • Trading
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Unlike long-only investors, short sellers attempt to profit from falling prices. As a directional approach, short selling is straightforward: sell stock and then buy it back to exit, or cover, the position. However, short sellers must first borrow the shares of stock they wish to sell. Short sellers are often regarded as sophisticated market players — traders who can identify stocks that are likely to underperform their peers, and who act aggressively to exploit that outlook. Roughly 20 years of empirical evidence supports this perception: Heavily shorted stocks lag the market, on average, earning profits for short sellers. Read on to learn more.

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Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

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Article copyright 2011 by Active Trader Magazine. Reprinted from the April 2010 issue with permission from Active Trader Magazine.

The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.

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