Write 12 pages with APA style on The cost of short selling. A short sale, in general, requires loaning a security and comprises two parties- the borrower and the lender. Stock lending can take place directly or through intermediate agents. The fee for lending is a factor of market demand and supply. low supply or high demand raises the fees. It is said that short selling also influences the market price of a stock. for this reason the regulatory bodies restrict short selling in times of depressed market conditions. Another argument that goes against short sale is the high costs associated with it in the form of margin interest, commission and bid/ask spread. Other than these short selling is also exposed to dangers like unlimited losses, uptick rule etc. Other proxies are available in the market such as options that can replicate short selling and are also said to be less costly. Short selling costs Collateral and margin requirements- Short selling a stock is the opposite of going long on a stock in a “margin account”. An investor borrows the shares from the brokerage firm. As the seller does not own the stock he has to furnish collateral such as T-bills or cash (AIMA Canada, 2007). These serve the margin requirements of short selling. The amount which the investor has to deposit in the account at the point of initiation of sale is known as ‘initial margin’.
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