Which of the following statements about short selling is (are) true?
I. Short selling requires an initial margin deposit.
II. Short sellers begin a transaction with a sale and end it with a purchase.
III. Short sellers profit when the stock prices rises.
IV. Short selling can be a risky strategy.

Question

Quizplus · Accepted Answer

I, II, and IV are true. Short selling involves borrowing shares to sell them with the hope of buying them back at a lower price, which requires an initial margin deposit. It starts with a sale and ends with a purchase. It is risky because losses can be unlimited if the stock price rises indefinitely, contrary to III, which states a profit is made when prices rise, which is incorrect.

Which of the Following Statements About Short Selling Is (Are)