When a customer entrusts securities lending, he shall pay the security deposit to the securities company according to the legal proportion. Securities companies sell securities for customers and complete delivery with securities lent to customers. The proceeds from the sale of securities shall be deposited in securities firms as a guarantee for customers to borrow securities. When the price of the securities entrusted for sale rises, the securities company should recover the increased margin from the short-selling customers, otherwise it will use the mortgage payment to repurchase the securities to close the position.

When the securities fall to the customer's expected price, the customer buys back the securities and returns them to the securities company. If the customer can't repay the borrowed securities on time, the securities company can force the mortgagor to buy back the securities for him.

In the case of judging that the market will fall at a high level, borrowing other people's shares in advance to sell, and then buying them back at a low level, the borrower will make a profit by closing the position, which is the opposite of the current operation of buying stocks and making a profit through rising. Because it makes a profit by falling, it will attract a lot of money to enter the market and short in the bear market.

Extended data

Short selling is a risky business for investors and the securities market. Because when investors sell short, they don't own the stocks they sell, and they need to borrow money from the people who own the stocks, and the ultimate return of the stocks is to buy them at the current price. When investors are misinformed or misjudged, if the stock price continues to rise and the transaction is light, it is difficult to predict when the transaction can be completed and when the stop loss can be made.

On the other hand, the short selling mechanism also has the negative effect of disrupting the market. Short selling not only reduces the transaction cost through margin trading, but also creates a virtual relationship between supply and demand. This will lead to market signal distortion, bring negative effects to the market, and even accelerate the market decline to some extent.

When there are a lot of short positions in the market, on the one hand, investors will be bearish on the market and unwilling to enter the market; At the same time, a large number of short selling behaviors will lead to subsequent short selling behaviors, even cause panic among investors, and lead to a large number of stock selling, thus causing market turmoil.

Baidu encyclopedia-short selling mechanism

Baidu encyclopedia-short selling