Salman's first and last job was working for Wold Capital, a hedge fund. He also put his wife through medical school, So he can also consult with the doctor for the things he doesn't know. BTW he also has multiple graduate degrees in math, engineering, and computer science from MIT and Harvard. Check him out on Wikipedia.
Think of it this way. You lend me a sandwich and I immediately sell it for $5 promising you I will return an equivalent sandwich someday. Meanwhile, Oprah says everyone should eat tacos instead, and the price of sandwiches drops to $2. I buy a $2 sandwich and pay my sandwich debt to you yielding me a $3 profit minus whatever interest you were charging.
Except that your sandwich, which had TWO slices of bologna to begin with, was taken from your lunchbox by a figure of authority, maybe unbeknownst to YOU, and returned later to your lunchbox with only ONE piece of bologna, which, upon opening your lunchbox and inspecting said sandwich, would cause you to lose your smile.
Proceed w/ extreme caution when selling short. There are all sorts of perils. You can get burned because your gains are limited, but losses can run out of control if the stock keeps increasing. You can also get trapped in a short squeeze. Not for beginners. I learned the hard way.
Thank you soo much for explaining that budy. You broke it down and explain it very simply that I'm pretty sure anyone can understand it. You sir have now earned yourself a SUBSCRIBER!!!! Thanks again
Ooooohhhh! I get it now! Thank you so much for breaking it down. Love the colors used while explaining it. Your casual nature helped me relax like I was learning off of a paper napkin while drinking a beer. Cheers!
That's a prodigiously high interest, but is possible with illiquid stocks. The example was IBM, and interest on those shares is likely less than government bonds since many passive index funds own it
thanks so much man - excellent explanation. I covered my short of BoA stock right before 4Q09 and made an excellent profit. Went from trading $17 per share to $3.
The person *I* know who works in stock said two days ago that he would advise people to sell short within the next month and when I asked 'Why' he said something ELSE that confused me. Something with the word 'futures' and October in it. I said "Oh yeah, that clears it all up for ME. As clear as mud, that is." Why are we suddenly having trouble 5 years into a different Administration?
How exact do you have to be on the decline in prices? Like why do you think IBM will go down to $50 specifically, instead of say $75, and how do you determine that? What if it does go down, but not to the price you want??
You don’t actually know, its pure speculation. Had it come down to 75$, you would have made less money. If It had gone up to 120 for example, you would have lost money
When you borrow the stock do you have to declare what price it is going to drop to and are you bound to holding onto it until it drops to that price or can you profit as early as you choose by buying it back at any price below your sell ?
You don't have to declare it. You can buy it back whenever you want. Take into account that your prediction could be wrong too, and instead of the price dropping, it could rise! Leaving you with bigger problems.
So basically to clear up short selling, if you bought one share from your broker for 1$, and your broker decides to give you the share and the stock goes up to 1.30$ you would owe your broker .30c. now if the stock goes down to .70 you would have your broker cover you, and you would gain .30c because technically it still is only one share. You bet against your broker and your broker bet against you
I understand how short selling works perfectly. But I have heard a lot of people including Khan saying the lenders never know their stocks are being shorted 8:22, but no one explained why. I know it's not so important but I'm just curious. I mean how come lenders are getting paid by interests for borrowing their stocks to short sellers, while not knowing their stocks were lent? They must know in some way because they are receiving the interest, plus they gave permissions in the first place, right?
No? Interest rates on margin are generally in the 6-8% range, so assuming that you gave up and closed a position at the same amount that you entered it at (borrowed stock at $20, sold stock at $20), you would lose the commission fees on the two trades and the 6-8% interest that accrued while you had the stock. Had you held the stock for 1 month, you would generally only have lost .58% of your initial investment(assuming 7% interest).
Main question: how is this not illegal? Does the brokerage contract stipulate that one's shares can be rented to others, and potentially not returned in the case of a mass selloff?
sorry about this stupid question, im just into this.. whats the deadline to return a share? and what could happen if the price rises too much that you cannot or just (dont want) to buy it back? is this done automatically by the broker on your account?
How Long can you hold a short position for? If its just like buying/selling, then if you short 1 stock and it goes up a million dollars, wouldn't you not owe the million dollars till you decide to get out of the short? Which means you can never owe anything if you don't get out of them when they are high? Or do you specify a time frame when you purchase the short in which you must complete at a certain time or earlier?
How often does this happen when the original long owners of their stock do not know their stock is being loaned out? And if the price goes up can the reversal just put it back with out a loss?
Good video and clear example on short selling however, the software being used for the "blackboard" writing is not clear. This video could get even better by just just doing the writing on a whiteboard. Great job either way!
What happens if there is a company vote for shareholders? Given that the stocks have been shorted, how do you ensure that the original shareholder can still vote?
Why didn't you mention about the interest that the person has to pay to the broker for borrowing the share? Actually he must be left with less than $50.
so when i borrow someone's stock i have to write a cheque for their dividends....does that mean that the company (IBM) pays the dividend to me now since im holding the stock? otherwise im just making a loss of 5 bucks...?
So when I borrow the share I pay a rent (which is obviously less than a 100) and now my asset is a share with $100 value and my liabilities are the share owed by me to the share owner.... then I pay $50 to buy the share from the Broker (since it is now $50 and not a $100) then return the share to its owner as it is ( a share of $50) and now I have gained a $50. **would love some help with the following questions** -how does the broker let me buy the share when it is not his? Does he know I will return it because I owe it to the guy owner as a liability or does he let the owner know? -why did the share decrease from $100 to $50 again? ,,, thank you in advance,,, okay got it wrong I sell it in the market and get the $100 then I rebuy it for $50 (now I have assets and liabilities) According to my analysis I assume the IBM stock prices fall to half.....I most if the time might be wrong
so if you have shorted X shares of Y stock and Y, Inc. has a 25 cent per share dividend issued the next day, is it the responsibility of the person in the short position to cut a check for 25 cents a share for all shorted shares to the person from whom he borrowed the stock for shorting?
Hi, what is that mean you borrow a stock then return it later on when the price go down then the real owner of the stock if he want to sell it looses money??
Closing a short doesn't mean the owner sold, it means the share was returned to them which the shorter can do at any time. A lot of shares available for rent are owned by passive investment funds that keep costs low by holding shares forever and renting them to shorters.
Say there are 3 agents in the stock market, A, B, and C. All A does is short sell the common stock of Tesla company. All B does is buy the common stock of Tesla company. And all C does is buy (from B) AND lend (to C) the common stock of Tesla. Then would not B eventually end up with a number of shares EXCEEDING the total number of shares outstanding, say X, of Tesla Company? What prevents this from happening? ..... The point being, does not short sellng create phantom shares which do not exist? For there appear to be no safeguards in place, and nor does the SEC investigate such issues. In other words many now think they are holding shares of Tesla common, when in fact they are not, but are receiving papers in the mail saying they have shares in their account.
i understand the short selling but can anyone tell me how can i short stocks using a online brokers like Merrill edge. I have seen the theory part everywhere but no one actually demonstrated the real world example. is there any link to any real world example, of how to do short selling trade in real world.
When you start your educational video "You've probably heard the torm" while accidentally moving your graphic off-screen, you should probably start your recording process over.
On the very day that I have heard this presentation I heard at a Trader's Academy workshop this morning from the host broker that in short trading brokers typically keep every penny of profit from successful shorts and the owners of the borrowed stocks get NOTHING! In fact the host broker informed us that in the client agreement which is signed before your account is activated is permission for the broker to borrow client''s stock without informing them of the activity engaged in and that they are not obligated to pass on anything to the client borrowed from! Of course if you are on to reading fifteen minutes of copy you WILL see the provisions, but who in hell is going to do that? Know anything about this? Sure would like to know.
nice - but.....could have been a 2 minute video. You confused the viewer with a ton of tangential topics. You could just sum those up at the end. Ended up being a little too convoluted.
I don't get how Sal Khan manages to not only understand a wide range of topics but present them in such a way that anyone can learn from him.
Salman's first and last job was working for Wold Capital, a hedge fund. He also put his wife through medical school, So he can also consult with the doctor for the things he doesn't know. BTW he also has multiple graduate degrees in math, engineering, and computer science from MIT and Harvard. Check him out on Wikipedia.
I dont understand how Sal isnt as talked about as other bigtime genius types
Think of it this way. You lend me a sandwich and I immediately sell it for $5 promising you I will return an equivalent sandwich someday. Meanwhile, Oprah says everyone should eat tacos instead, and the price of sandwiches drops to $2. I buy a $2 sandwich and pay my sandwich debt to you yielding me a $3 profit minus whatever interest you were charging.
+Bubby I don't normally comment on RUclips videos, but this comment wins the corporate terminology internet award. Kudos to you.
+Bubby Why would you lend someone a sandwich? Lmao
GURU Pico how is this video complicated lol, even I that dont study finance and have no exposure to finance before can understand this
Your explanation is better than video!!
Except that your sandwich, which had TWO slices of bologna to begin with, was taken from your lunchbox by a figure of authority, maybe unbeknownst to YOU, and returned later to your lunchbox with only ONE piece of bologna, which, upon opening your lunchbox and inspecting said sandwich, would cause you to lose your smile.
Khan should’ve appeared in The Big Short as a defining-a-term-cameo.
Except it's about celebrities not how well you can explain something. That's why there's script writers
You really can learn anything with Khan academy's! Thanks, Sal.
GameStop vs Robinhoods LOL
💎 🙌
I came here to see if there was an updated version of this video given the GameStop stock situation
The absolute BEST EXPLANATION of short selling I’ve seen yet! Thank you!
This topic has been wildly confusing. You have done an excellent job of explaining this process, and I thank you for broadening my understanding.
Proceed w/ extreme caution when selling short. There are all sorts of perils. You can get burned because your gains are limited, but losses can run out of control if the stock keeps increasing. You can also get trapped in a short squeeze. Not for beginners. I learned the hard way.
Thank you soo much for explaining that budy. You broke it down and explain it very simply that I'm pretty sure anyone can understand it. You sir have now earned yourself a SUBSCRIBER!!!! Thanks again
Thank you so much for the way you explained this. I havent been able to understand short selling for the longest time, but now I do understand it.
I will be eternally grateful to you because you greatly helped me. I appreciate everything you do for us.
This is honestly the only RUclips Video I understood after watching 10 videos about Short Stocks
Very clear and detail explanation.love it, thanks .
"deep analysis" insider trading/...
Thank you! Now I finally understand this concept!
Hey, at the end of the video, Sal forgot to reverse that buy and sell principle while shorting. It should be "Buy High/Sell Low". Please correct it.
24 holders of IBM stock didn't like this video :)
100 holders*
@@snay6869122*
@@markusvuori lol
@@markusvuori wait a fking second, I wrote that comment last year hmmm
137
Ooooohhhh! I get it now! Thank you so much for breaking it down. Love the colors used while explaining it. Your casual nature helped me relax like I was learning off of a paper napkin while drinking a beer. Cheers!
it was clear and easy to undertsand thank you
Got it.
Thank you
Thank you very much
You should do a video current day about what’s going on for example with Gamestop
He forgot about about the $5 he paid to the owner of the stock. He really made $45 in this example.
I think the share he borrowed get the $5 as well, he isn't paying from his own pocket.
the stock earned the dividend, in reality he just dosnt get to keep it.
and the "rent" he had to pay too to borrow the share right? apart from the $5.
Or he can just sell futures 🤷🏻♂️
That's a prodigiously high interest, but is possible with illiquid stocks. The example was IBM, and interest on those shares is likely less than government bonds since many passive index funds own it
best explanation on short selling
This is a great explanation of the process. Thank you
thank you
This a good explanation of short selling.
very educational.
Beautiful explanation. Simple and straightforward.
Great info! Thanks for posting.
thanks so much man - excellent explanation. I covered my short of BoA stock right before 4Q09 and made an excellent profit. Went from trading $17 per share to $3.
keep up the great work. love the visuals.
Can you organize the playlist? Is very difficult to follow
Thank you Khan
Thank you for the explanation. It clicked for me once it was noted as an asset vs. a liability.
Thanks!!
great video thank you
Great job
Excellent!
Best explanation on the web. Love during the video when a question popped in my head and you foreseen people asking that question ans answered it LOL!
Thanks! Subbed.
The person *I* know who works in stock said two days ago that he would advise people to sell short within the next month and when I asked 'Why' he said something ELSE that confused me. Something with the word 'futures' and October in it.
I said "Oh yeah, that clears it all up for ME. As clear as mud, that is."
Why are we suddenly having trouble 5 years into a different Administration?
A time line would be good to show the sequence of all the transactions.
How do you know everything
When I get rich someday , I am giving Sal some of my Company Shares
everyone has different priorities
You are the best
thanx i like your videos
How exact do you have to be on the decline in prices? Like why do you think IBM will go down to $50 specifically, instead of say $75, and how do you determine that? What if it does go down, but not to the price you want??
You don’t actually know, its pure speculation. Had it come down to 75$, you would have made less money. If It had gone up to 120 for example, you would have lost money
When you borrow the stock do you have to declare what price it is going to drop to and are you bound to holding onto it until it drops to that price or can you profit as early as you choose by buying it back at any price below your sell ?
You don't have to declare it. You can buy it back whenever you want. Take into account that your prediction could be wrong too, and instead of the price dropping, it could rise! Leaving you with bigger problems.
finally a video where someone actually explains what the Title of the video says it will....Thanks a ton! hopefully a ton of Mulah lol
So basically to clear up short selling, if you bought one share from your broker for 1$, and your broker decides to give you the share and the stock goes up to 1.30$ you would owe your broker .30c. now if the stock goes down to .70 you would have your broker cover you, and you would gain .30c because technically it still is only one share. You bet against your broker and your broker bet against you
Hi, I've been stocked in the order of the videos. Could you please arrange them in the right order?
GME TO THE MOOON 🚀🚀🚀🚀
I understand how short selling works perfectly. But I have heard a lot of people including Khan saying the lenders never know their stocks are being shorted 8:22, but no one explained why. I know it's not so important but I'm just curious. I mean how come lenders are getting paid by interests for borrowing their stocks to short sellers, while not knowing their stocks were lent? They must know in some way because they are receiving the interest, plus they gave permissions in the first place, right?
When you sell a stock you borrowed, then buy it back at a lower price and pocket the difference.
No?
Interest rates on margin are generally in the 6-8% range, so assuming that you gave up and closed a position at the same amount that you entered it at (borrowed stock at $20, sold stock at $20), you would lose the commission fees on the two trades and the 6-8% interest that accrued while you had the stock. Had you held the stock for 1 month, you would generally only have lost .58% of your initial investment(assuming 7% interest).
Looks like fractional reserve banking, (but with shares instead if money)
Main question: how is this not illegal? Does the brokerage contract stipulate that one's shares can be rented to others, and potentially not returned in the case of a mass selloff?
sorry about this stupid question, im just into this.. whats the deadline to return a share? and what could happen if the price rises too much that you cannot or just (dont want) to buy it back? is this done automatically by the broker on your account?
how does shorting a stock compare to buying or selling a put option?
How Long can you hold a short position for? If its just like buying/selling, then if you short 1 stock and it goes up a million dollars, wouldn't you not owe the million dollars till you decide to get out of the short? Which means you can never owe anything if you don't get out of them when they are high? Or do you specify a time frame when you purchase the short in which you must complete at a certain time or earlier?
How often does this happen when the original long owners of their stock do not know their stock is being loaned out? And if the price goes up can the reversal just put it back with out a loss?
Good video and clear example on short selling however, the software being used for the "blackboard" writing is not clear. This video could get even better by just just doing the writing on a whiteboard. Great job either way!
I disagree. I loved the colora and would have been bored with a plain black board. What he used was my favorite part of the presentation actually.
Who is the 'broker'? Is it company like etrade or robinhood?
Yep. Broker is just a fancy term for a salesman or shop
@@thecarrots5 Not really. A broker connects buyers and sellers, he doesn't own the stuff
@@samsonsoturian6013 good point
It is cool!
Which is correct sir. You sell high $100 for the share and buy low $50 for a share.
If there was nothing overbought in the FIRST place, there would be no short-sellers coming later. So WHO is to blame?
What happens if there is a company vote for shareholders? Given that the stocks have been shorted, how do you ensure that the original shareholder can still vote?
Why didn't you mention about the interest that the person has to pay to the broker for borrowing the share? Actually he must be left with less than $50.
sir, doesn't the short seller has a liability of the interest on the stock borrowed from the broker?
Why haven't you included it?
so when i borrow someone's stock i have to write a cheque for their dividends....does that mean that the company (IBM) pays the dividend to me now since im holding the stock? otherwise im just making a loss of 5 bucks...?
What is a stock price?
Get high sell high buy low sell low . Short win
Khan, tell me this. When moon?
So when I borrow the share I pay a rent (which is obviously less than a 100) and now my asset is a share with $100 value and my liabilities are the share owed by me to the share owner.... then I pay $50 to buy the share from the Broker (since it is now $50 and not a $100) then return the share to its owner as it is ( a share of $50) and now I have gained a $50.
**would love some help with the following questions**
-how does the broker let me buy the share when it is not his? Does he know I will return it because I owe it to the guy owner as a liability or does he let the owner know?
-why did the share decrease from $100 to $50 again?
,,, thank you in advance,,,
okay got it wrong
I sell it in the market and get the $100 then I rebuy it for $50 (now I have assets and liabilities)
According to my analysis I assume the IBM stock prices fall to half.....I most if the time might be wrong
so if you have shorted X shares of Y stock and Y, Inc. has a 25 cent per share dividend issued the next day, is it the responsibility of the person in the short position to cut a check for 25 cents a share for all shorted shares to the person from whom he borrowed the stock for shorting?
so short selling is just selling before the stock/bond goes down in hopes of avoiding losing money?
no you expect the price to go down so you borrow the shares and sell the shares than buy back for a lower price and give back to original owner.
leonardo kae got it. Thanks
Hi, what is that mean you borrow a stock then return it later on when the price go down then the real owner of the stock if he want to sell it looses money??
Closing a short doesn't mean the owner sold, it means the share was returned to them which the shorter can do at any time. A lot of shares available for rent are owned by passive investment funds that keep costs low by holding shares forever and renting them to shorters.
what happens of I can't rebuy the share after selling it in the market for $100?
sir i thought shorting is only for intraday (in the same day) . in ur videos it says for quarterly ,so can we do in long terms also ?
Why would the broker bother to do this? You never showed the stock borrower paying the broker some $7 fee or whatever.
"Wait Sal, how can you just borrow this guy's stock? He might want to sell it the next day!"
Sal "That's a good question!"
@TaIk2Kevin i got it thanks : )
The wash sale rule would apply in this case correct?
1:40 ... Turns out the man from Monopoly works for Khan Academy now !
Say there are 3 agents in the stock market, A, B, and C. All A does is short sell the common stock of Tesla company. All B does is buy the common stock of Tesla company. And all C does is buy (from B) AND lend (to C) the common stock of Tesla. Then would not B eventually end up with a number of shares EXCEEDING the total number of shares outstanding, say X, of Tesla Company? What prevents this from happening? .....
The point being, does not short sellng create phantom shares which do not exist? For there appear to be no safeguards in place, and nor does the SEC investigate such issues. In other words many now think they are holding shares of Tesla common, when in fact they are not, but are receiving papers in the mail saying they have shares in their account.
what if i short and every shareholder wants to sell?
Can't believe I am watching a video made 12 years ago
how come i borrowed a share then sold it in the market ?
Man, thank you, great explanation, you should write the next " Complete Idiots Guide on short selling.
@dj2dirk41 hes saying when u go long u buy low/sell high. when u go short, first u sell high/then u buy low to return the share
If I'm lending out my shares, I collect interest?? How do I set this up with my broker?
Nah, your broker does that to keep costs down. You get nothing.
i understand the short selling but can anyone tell me how can i short stocks using a online brokers like Merrill edge. I have seen the theory part everywhere but no one actually demonstrated the real world example. is there any link to any real world example, of how to do short selling trade in real world.
When you start your educational video "You've probably heard the torm" while accidentally moving your graphic off-screen, you should probably start your recording process over.
Nobody cares tbh
On the very day that I have heard this presentation I heard at a Trader's Academy workshop this morning from the host broker that in short trading brokers typically keep every penny of profit from successful shorts and the owners of the
borrowed stocks get NOTHING! In fact the host broker informed us that in the client agreement which is signed before your account is activated is permission for the broker to borrow client''s stock without informing them of the activity engaged in and that they are not obligated to pass on anything to the client borrowed from! Of course if you are on to
reading fifteen minutes of copy you WILL see the provisions, but who in hell is going to do that?
Know anything about this? Sure would like to know.
dont you make 45 because of dividend you had to pay
Robert Tesoro I assume the dividend went to the guy who borrowed the stock, and then that guy gave it back to the rightful owner
I'll bet the dislikes are from IBM stockholders.
the market makers made teh economy tank with their computers! It's all those $KCG computers!
Only a math teacher could make it this convoluted. lol
Who all seen the leprechaun say YEAHHH!
nice - but.....could have been a 2 minute video. You confused the viewer with a ton of tangential topics. You could just sum those up at the end. Ended up being a little too convoluted.