Naked shorting

A 'naked' short involves shorting shares that are not available to borrow.

Shorting involves borrowing shares from a broker, then selling them in the hope they will fall in price and can then be bought back for a profit and returned to the lender.

A 'naked' short involves shorting shares that are not available to borrow. This can arise due to the gap in stock trades between the deal date and delivery date- typically three working days. Brokers should ensure that shares they don't own, but plan to lend to shortsellers, will be delivered to them within that three-day window.

But some 'easy to borrow' US shares can be lent out without the broker finding them first. Should they not then turn up, the borrower has unintentionally sold 'naked'. Deliberate naked selling is banned in America.

See Tim Bennett's video tutorial: Why a short-selling ban won't work.

Most Popular

Market crash: have we hit bottom or is there worse to come?
Stockmarkets

Market crash: have we hit bottom or is there worse to come?

For a little while, markets looked like they were about to embark on a full-on crash. And that could still happen, says Dominic Frisby. Today, he look…
27 Jun 2022
Interest rates are rising, here are the best savings accounts on the market
Savings

Interest rates are rising, here are the best savings accounts on the market

With inflation at more than 9%, your savings are not going to keep pace with the rising cost of living. But you can at least slow the rate at which yo…
24 Jun 2022
Why a recession will do us good
UK Economy

Why a recession will do us good

A period of slimming down is always painful, but it leaves us healthier for the long run, says Matthew Lynn.
26 Jun 2022