A stockbroker trades shares she does not own with an obligation of later repayment, and in the hope that the price of traded shares will fall. She then repays share debt with shares purchased at a lower price and pockets the spread between initial share price and repayment price. This attempt to profit from a falling stock price is known as _____.
A) insider trading
B) churning
C) arbitrage trading
D) short selling
E) going long

Question

Quizplus · Accepted Answer

This is a description of short selling, where a trader borrows shares to sell them at the current market price with the hope of buying them back later at a lower price to return to the lender, profiting from the price difference.

A Stockbroker Trades Shares She Does Not Own with an Obligation