Buzzword: Naked short selling

Marketplace Staff Jun 23, 2006

A controversial trading practice exposed brings us this week’s Marketplace Money buzzword: Naked short selling.

Naked short selling is a way to trade stocks you don’t have.

In a typical short sale, you borrow stock from a broker and sell it, betting the price will fall. When it does, you buy the stock back, return it, and pocket the price difference.

Naked shorting is the same, except the stock isn’t actually in your possession when you sell it.

Sound illegal? Not always, thanks to loopholes in trading rules. But next week the Senate holds hearings to investigate those loopholes and they might strip them away.

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