Short selling or "shorting" is the practice of selling things the seller does not own, in the hope of repurchasing them later at a lower price. Often the sold item is 'borrowed' or 'rented' for the period of sale and re-purchase, and this constitutes as an attempt to profit from an expected decline in price, in contrast to the ordinary investment practice, where an investor "goes long," purchasing a security in the hope the price will rise. Strategies include purchasing derivatives known as puts (options in the short position) or futures.
To profit from the stock price going down, short sellers can borrow a security and sell it, expecting that it will decrease in value so that they can buy it back at a lower price and keep the difference. The short seller owes their broker, who usually in turn has borrowed the shares from some other investor who is holding his shares long; the broker itself seldom actually purchases the shares to lend to the short seller.[1] The lender of the shares does not lose the right to sell the shares.
Short selling is the opposite of "going long." The short seller takes a fundamentally negative, or "bearish" stance, anticipating that the price of the shorted stock will fall (not rise as in long buying), and it will be possible to buy at a lower price whatever was sold, thereby making a profit ("selling high and buying low," to reverse the adage). The act of buying back the shares which were sold short is called 'covering the short'. Day traders and hedge funds often use short selling to allow them to profit on trading in stocks which they believe are overvalued, just as traditional long investors attempt to profit on stocks which are undervalued by buying those stocks.
With effect from Monday (22 Sept), the SGX has imposed a fine to short-sellers who cannot deliver shares they sold within 4 days, and that will be at a penalty of 5 percent of the value of the failed trade subject to a minimum of S$1,000. This is in addition to the current processing fee for buying-in of S$30 per contract.
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