Question

What is Short Selling in stock market lingo?

• A. Selling the shares which you do not own.
• B. Selling a share after owning it for a short period of time.
• C. Selling all the shares in your booty which are not productive.
• D. Selling of shares which are quoted for a short period of time.

Hint:

Think about borrowing shares first and selling them before you actually own them.

Answer 1

The Correct Option is A

This question checks the meaning of the term short selling used in stock markets.

1. Selling the shares which you do not own: This is exactly what short selling means, a trader borrows shares from a broker and sells them, hoping to buy them back later at a lower price and pocket the difference.
2. Selling a share after owning it for a short period of time: This just describes a quick regular trade, it has nothing to do with borrowing shares you never owned, so it is wrong.
3. Selling all the shares in your booty which are not productive: This describes clearing out a poor performing portfolio, which is portfolio rebalancing, not short selling.
4. Selling of shares which are quoted for a short period of time: Share quotation duration has no bearing on the term short selling, so this is wrong too.

So option A is correct.

Let's summarize:

• Short selling means selling borrowed shares you do not own, betting the price will fall.

Remembering the borrow-sell-buyback cycle makes this term easy to recall.