UK and US bans short-selling of stocks

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Guess you all heard of what happened to Wallstreet’s big names over the week — they said bye-bye and was either bought or filed for bankruptcy. And now, to calm their volatile stock markets, officials in the United Kingdom and the United States have temporarily banned a practice called “short selling” of financial stocks. This is a way of making money if a stock goes down in value. Here’s how it works:

The investor borrows some stock and sells it, promising to return the same number of shares to the lender. If the price falls, then the investor can buy back stock at a lower price and return the same number of shares. The profit is the difference between the sale price of the borrowed stock and the cost of replacing it. But if the price goes up, the investor loses money. Short selling is legal, but is banned now to calm the financial markets.

Author: Melissa

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