A negative equity position requires a share loan as well as a sale. The short seller later buys shares to return to the lender and pays the applicable dividends and borrowing fees. This lesson calculates that result and explains recall and funding risks. It connects equity ownership with margin before comparing cash shorts with futures shorts.
Learning objectives. By the end of this note you should be able to:
- explain how a broker establishes and closes an equity short;
- calculate profit after dividends and borrowing fees;
- identify margin, borrow-availability, recall and buy-in risk;
- contrast a short cash position with a short futures position.
In this lesson
- Borrow, sell, buy, return
- The risks are asymmetric
- Cash shorts and derivative shorts differ
- Borrowed shares must be returned
The full lesson, with worked examples and exercise solutions, is for members.
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