Why people still look for “naked” short-sellng stocks instead of short selling CFDs
Investopedia has a nice article on this here The Key benefit looks like better returns with lower capital. The disadvantage is few brokers offering that can be trusted. Potentially lower return due to margins / spreads. Higher leverage and can become an issue.
"The reason for selling a stock ""short"", is for when you believe the stock value will decrease in the near future. Here is an example: Today Exxon-Mobile stock is selling for $100 / share. You are expecting the price to decrease, so you want to short the stock, which means your broker (i.e. eTrade, etc) allows you to borrow shares without paying money, and those shares are transferred into your account, and then you sell them and receive money for the sale. But you didn't actually own those shares, you only borrowed them, so you need to return the shares to your broker sometime in the future.  Let's say you borrow 10 shares @ $100, and you sell them at the market price of $100, you receive $1,000 in your account. But you owe your broker 10 shares, which you need to return sometime in the future. A few days later, the share price has decreased to $80. Now you can buy 10 shares from the market at a total cost of $800. You get 10 shares, and return those shares to your broker. Since you originally took in $1,000, and you just paid out $800, you keep a resulting profit of $200" Shorts are difficult because you have to find someone to lend the stock to you. In contrast, put options don't require that. They also have some nice properties like you're only out the contract price. The options chain for BSFT will give you an idea of where the market is.  Keep in mind that BSFT only IPO'd last year and announced blowout earnings recently. Make sure the P:E you're looking at is using recent earnings reports! The point of short-selling as a separate instrument is that you can you do it when you can't sell the underlying asset... usually because you don't actually own any of it and in fact believe that it will go down. Shorting allows you to profit from a falling price. Another (non-speculative) possibility is that you don't have the underlying asset right now (and thus can't sell it) but will get it at a certain point in the future, e.g. because it's bonds that you've used to guarantee a loan... or grain that's still growing on your fields. "I think that ""memoryless"" in this context of a given stock's performance is not a term of art. IMO, it's an anecdotal concept or cliche used to make a point about holding a stock. Sometimes people get stuck... they buy a stock or fund at 50, it goes down to 30, then hold onto it so they can ""get back to even"". By holding the loser stock for emotional reasons, the person potentially misses out on gains elsewhere." Shorting is the term used when someone borrows a stock and sells it at the current price to then buy it back later at hopefully a lower price. There are rules about this as noted in the link that begins this answer as there are risks to selling a stock you don't own of course. If you look up various large companies you may find that there are millions of shares sold short throughout the market as someone does have the shares and they will need to be put back eventually. Timothy Sykes specializes in this type of trade, according to his website. He has some recommendations for brokers that allow shorting low-priced stocks: "So, yes, you may be having the inevitable epiphany where you realize that options can synthetically replicate the same risk profile of owning stock outright. Allowing you to manipulate risk and circumvent margin requirement differences amongst asset classes. Naked short puts are analogous to a covered call, but may have different (lesser) margin requirements. This allows you to increase your risk, and the broker has to account for that. The broker's clientele might not understand all the risks associated with that much leverage and so may simply consider it risky ""for your protection""" Patrick Byrne (CEO of Overstock.com) ran a somewhat interesting website awhile back called 'Deep Capture' which focused heavily on naked short selling and bear raids. He was called all sorts of names and many 'serious' journalist types brushed his allegations off.   His basic argument was that a cabal of hedge funds would simultaneously naked short a specific equity and then a coordinated group of journalists and message board jockeys would disparage the company as loudly and publicly as possible, driving the price down. Naked shorting is supposed to be illegal since you can hold the types of positions like in the linked article about Citigroup where the number of shares sold short actually exceeds the number of shares in existence.  The group he named was essentially a who's who of hedge funds and fraudsters and included many names of prominent politically active 'reformed' criminals from the S&amp;L days on Wall St. I can't remember how the cards fell, but the scheme allegedly involved Michael Milliken, Sam Antar (from Crazy Eddie's Fraud), Gary Weiss, Jim Cramer, etc etc.   It was a fascinating story.   Byrne actually followed through with several lawsuits (one of which was settled after a Rocker Partners paid Byrne $5 million dollars to settle).   The 'Deep Capture' site is down, but I [found a decent article](http://www.theregister.co.uk/2008/10/01/wikipedia_and_naked_shorting/print.html) that sums up some of the shenanigans, including a journalist sock-puppeting to edit Wikipedia, repeatedly denying it, being IP-traced to inside the DTCC building (the Wall St. entity responsible for clearing trades, including naked shorts). Some platforms/brokers have HTB indication for a stock symbol, meaning Hard To Borrow. That usually means you can't sell it short at the moment. Shorts need a buyer on the other end somewhere, if there is no one interested in taking the other side of it, you probably won't find anywhere you will be able to execute that trade. Take a look on your broker's site, see if it's an option they will even give you. Adding to the answers above, there is another source of risk: if one of the companies you are short receives a bid to be purchased by another company, the price will most probably rocket... Yes, just set aside the amount of money. If you buy a cfd long in a stock for a 1000$, set aside 1000$. If you buy a cfd short, set aside the same amount and include a stoploss at the value at which the money is depleted. In this case however, you can stil lose more, because of opening gaps. By doing this, you replicate the stock return, apart from the charged interest rate. "There are two primary reasons shares are sold short:  (1) to speculate that a stock's price will decline and (2) to hedge some other related financial exposure. The first is acknowledged by the question.  The second reason may be done for taxes (shorting ""against the box"" was once permitted for tax purposes), for arbitrage positions such as merger arbitrage and situations when an outright sale of stock is not permitted, such as owning restricted stock such as employer-granted shares. Why would a shareholder lend the investor the shares? The investor loaning his stock out to short-sellers earns interest on those shares that the borrower pays.  It is not unusual for the annualized cost of borrowing stock to be double digits when there is high demand for heavily shorted shares.  This benefit is however not available to all investors." "If you sell a stock you don't own, it's called a short sale. You borrowed the shares from an owner of the stock and eventually would buy to close. On most normal shares, you can hold a short position indefinitely, but there are some shares that have a combination of either a small float or too high a short position that shares to short are not available.  This can create a ""short squeeze"" where shorts are burned by being forced to buy the stock back.  Last - when you did this, you should have instructed the broker that you were ""selling to open"" or ""selling short."" In the old days, when people held stock certificates, you were required to send the certificate in when you sold. Today, the broker should know that wasn't your intention." "You are likely making an assumption that the ""Short call"" part of the article you refer to isn't making: that you own the underlying stock in the first place. Rather, selling short a call has two primary cases with considerably different risk profiles. When you short-sell (or ""write"") a call option on a stock, your position can either be: covered, which means you already own the underlying stock and will simply need to deliver it if you are assigned, or else uncovered (or naked), which means you do not own the underlying stock. Writing a covered call can be a relatively conservative trade, while writing a naked call (if your broker were to permit such) can be extremely risky. Consider: With an uncovered position, should you be assigned you will be required to buy the underlying at the prevailing price. This is a very real cost — certainly not an opportunity cost. Look a little further in the article you linked, to the Option strategies section, and you will see the covered call mentioned there. That's the kind of trade you describe in your example."