If you sell stocks by borrowing stocks from a securities company or financial company and then buy them back and pay them back after the price drops, it is called short selling, but it is not "naked short selling"

Overview of Credit Transactions

The so-called credit transactions, also known as "Margin Trading" and margin transactions, refer to the parties in securities transactions only delivering a certain margin to the securities company when buying and selling securities, or only Deliver certain securities to a securities company, and the securities company will provide financing or securities lending for trading. Therefore, credit transactions are specifically divided into two types: financing buying and securities lending selling. That is to say, when a customer buys or sells securities, he or she only pays a certain amount of deposit to the securities company or delivers part of the securities. If the price to be paid and the securities to be delivered are insufficient, the securities company will advance the payment and conduct the securities buying and selling transactions as an agent. Among them, buying securities with margin financing is "short buying", and selling securities with margin financing is "short selling".

Margin trading is divided into two types: margin buying long trading and margin selling short trading. Margin long-term trading means that a certain stock with a bullish price is bought by the stock trader, but he only pays part of the margin, and the rest is advanced by the broker, and charges interest on the advance, and at the same time controls the mortgage rights of these stocks. The difference between the interest earned by the broker on pledging these stocks to the bank and the interest paid to the bank is the broker's income. When buyers and sellers fail to repay these advances, the broker has the right to sell the shares.

Margin short selling refers to a certain stock that is bearish. The stock trader pays a part of the margin to the broker, borrows the stock through the broker, and sells it at the same time. If the price of this kind of stock does fall in the future, the same amount of stock will be bought back to the lender at the current market price, and the buyer and seller will gain profit from the price difference during the transaction.

[Edit this paragraph] Characteristics of credit trading

The most significant feature of stock credit trading is borrowing money to buy stocks and borrowing stocks to sell stocks. Generally speaking, those with low capital can also speculate in stocks, and those with no stocks can also sell stocks. This is similar to investing in industries. Since investors have limited self-owned capital, most of the funds must apply for loans from banks. Specifically, stock credit trading includes the following characteristics:

1. Dual credit stock traders in stock credit trading buy part of the price and the remaining part borrowed from the broker, and the shortfall is , that is, the advance borrowed from the broker is based on credit. The broker advances part of the price difference on the premise that the investor can repay this part of the price difference and advance part of the price difference in the future. This is a credit relationship between the broker and the investor.

On the other hand, how is the difference in price advanced by the broker obtained? To this end, the broker has to borrow money from the bank to pay this amount, so that there is also a credit relationship between the bank and the broker. When banks lend, they also rely on the trust that the broker who is the borrower of the loan will be able to repay this part of the money and the borrowing interest generated by the principal in the future.

Therefore, if there is one missing layer in these two trust relationships, there is no possibility for stock credit transactions to be established.

2. Advance interest in stock credit transactions. After the investor enters into a sales contract through credit transactions, a lending relationship continues to exist between the investor and the securities company. Specifically, it acts as an agent for the investor. A securities company that advances purchase funds will charge a certain percentage of interest on its agency advances, which is called advance payment interest; similarly, a securities company that advances stocks on behalf of investors will also require customers to pay the sales price for preservation by the seller. Pay a certain percentage of interest.

3. Stock credit trading is based on the principle of spot trading. Although stock credit trading has its own special buying and selling method, from the perspective of delivery method, this trading method is basically the same as spot trading. After the margin transaction is completed, both the buyer and the seller must settle and deliver immediately. In addition, during the delivery period, both the buyer and the seller will deliver in cash or spot (stock), which is the same as the spot transaction. The difference is that part of the cash (or stock) is borrowed. For example, the "regular day" delivery and settlement stipulated by the New York Stock Exchange in the United States means delivery on the afternoon of the fifth day after the transaction is completed. If investors all buy and sell with their own money and stocks, of course they will also use their own money and stocks during settlement. Stock delivery, this is spot trading. If the investor pays part of the money himself and the broker advances the rest, or if there are not enough stocks and the broker advances the money, then it is a credit transaction.

4. The trading volume and margin ratio of stock credit transactions. For margin credit transactions, traders must pay a certain amount of cash (stocks are also converted into cash according to the current market price) as margin. This certain amount of cash is determined by the margin ratio.