Series 7 practice questioneasyMargin and Short Sales 1
Which statement is TRUE regarding margin and short sales?
- AA short sale is completed by delivering the customer’s long shares from another account without consent
- BShort sellers benefit when stock prices rise indefinitely
- CA buy stop order is used to protect a long stock position against decline
- DA short seller who wants to close out the position must buy the stock back in the market✓ Correct answer
Explanation
Why D — A short seller who wants to close out the position must buy the stock back in the market
Short positions are closed by purchasing the securities, known as buying to cover. Short sellers generally profit when the stock price declines, not when it rises.
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