Trade of the Month: Truworths
How to make sure investors don’t get the short end of the stick and end up with worthless warrants
Novice investors often think it sophisticated to say: "I’m going short on that stock." Most would be stumped if you demanded details. Some may recite the How to Sell Stock Short for Dummies four-step programme: step one, borrow a given number of the stock from your broker; step two, sell the stocks and pocket the proceeds; step three, wait for the price of the given stock to fall so you can repurchase them with part of the original proceeds; step four, return the borrowed stocks and pocket the profit. The first snag is, good luck finding a broker willing to loan you stock to short if you are a retail investor — which is fortunate considering the disaster lurking at step three for investors without deep pockets when the price of the shorted stock rises instead of falls. When brokers loan stock to their clients to short, it is on condition they keep enough cash in their broking account to cover repurchasing the borrowed shares. If the shorted stock’s price goes up instead of down, mor...
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