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SEC opens markets to short selling again
By The Associated Press
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Published: October 10, 2008
Associated Press
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NEW YORK — The government is letting investors bet on financial stocks going down in hopes that the market benefits.
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It’s a strategy known on Wall Street as short selling. And, for three weeks, the government banned the practice to protect financial companies whose shares had come under siege.
Short sellers were blamed for the massive declines in companies like Lehman Brothers and Bear Stearns that were already crippled by the credit crunch. Still, debate continues if the ban did more harm than good.
The ban expired Wednesday night. Here are questions and answers about short selling’s return to Wall Street.
Q: How does short selling work? How can you put money on a stock going down?
A: In short selling, investors borrow shares and sell them with the hope they’ll go down in value, so they can pay for the shares later at a lower price and turn a profit.
It’s an investment strategy that turns the "buy low, sell high” idea on its head — instead, you sell high first, then wait for a good time to buy low.
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