Q:
What is "Selling
Short"?
A: Selling Short is
an advanced form of trading that is extremely useful when a bad market rumor or
a bad company rumor is circulating. Q:
Should I Sell Short if I am new to the game?
A:
No. It is not recommended unless you are an advanced
player because it requires more strategy and maintenance. Moreover, all players
in the game must be experienced enough to prevent any one player from having an
advantage over the others. Q:
How do I Sell Short?
A: When you
sell short a Stock you are essentially borrowing the shares from your broker and
selling them at the current market price, in the hope the price of the Stock declines
– at which point you buy the shares back, return them to your broker, and
keep the difference for yourself. However, if the Stock price moves up beyond
where you sold it short and you decide to buy the shares back, you will lose the
difference! Q: What is an
example of Selling Short and making a profit?
A:
Suppose you Sell Short 100 shares of Diamond [D], which is currently trading at
$100 per share. Some time later, you notice that the price of Diamond [D] fell
to $80 per share. You wish to buy the shares back at this lower price. So, you
buy back 100 shares ("Cover Your Short") and Gain $2,000 [(100 - 80) x 100]. Q:
What does "Cover Your Short" mean?
A:
This statement is used when you buy back a Stock that you Sold Short. Q:
How exactly did I make money in the example above?
A:
You made money because you bought back the Stock at a lower price ($80) than when
you sold it short ($100). Q:
What is an example of Selling Short and having a loss?
A:
Suppose, in the example above, the Stock price climbed up to $130 per share due
to a Good Company Rumor. If you decide to cover your short at this price you will
Lose $3,000 [(100 - 130) x 100]. Q:
How exactly will I lose money if I covered my short at $130 per share, in the
example above?
A: You will lose
money because you will buy back the Stock at a higher price ($130) than when you
sold it short ($100). Q:
Is there a simple rule for Selling Short?
A:
Yes. Sell High then Buy Low. If you sell short a Stock at a given price
[Sell High], then some time later you buy it back at a lower price [Buy Low],
you will make money. Q: Is
the rule for Selling Short the same as the rule for regular trading?
A:
Yes. But the order is reversed. Q:
What is Trading On Margin?
A: In
this game, selling short and buying to cover a short position are the only trades
executed using borrowed resources. This method of using borrowed resources
to make a trade is called Trading on Margin. Q:
Is there any requirement for Trading On Margin?
A:
Yes. The only requirement for Trading On Margin is the total value of your short
sale must not exceed twice your cash holdings. For instance, if you have $5,000
in cash you may sell short a Stock up to $10,000 in value. The $5,000 cash is
used as Equity [Collateral] when making the actual trade. The Cash Equity is held
frozen by the Bank and is redeemed when you cover your short position. Q:
What is Cash Equity?
A: The Cash
Equity is the money required by the Bank in order to execute a Short Sale. Q:
How do I determine the Cash Equity required to execute a Short Sale?
A:
The Cash Equity is determined by dividing the short sale value of the Stock by
TWO. You must round the cash equity to the nearest hundred dollars when necessary. Q:
What is the Cash Equity for the examples above)?
A:
In the previous two examples the Cash Equity is $5,000 [(100 x $100) ÷ 2]. Q:
When do I redeem my Cash Equity?
A:
The Cash Equity is held frozen by the Bank and is redeemed when you cover your
short position. Q: What is
another example of Selling Short?
A:
Suppose Beryl [B] is currently trading at $300 per share when a bad company rumor
is just released. Now, It is your turn to roll and you land on a Trade space.
You decide to Sell Short 100 shares of Beryl [B]. The Cash Equity required is
$15,000 [(100 x $300) ÷ 2]. Since your total cash holdings is $40,000 you can
afford the trade. You give $15,000 to the Bank and the B/B records your Short
Sale in the Short Sale Record Table. Q:
What is a Short Sale Record Table?
A:
A Short Sale Record Table is a special table that is used by the B/B to record
all Short Sales made by players. Q:
Are Short Sale Record Tables provided by the game?
A:
Yes. These tables are provided for your convenience! Q:
What are examples of Short Sales recorded in the table?
A:
The previous examples would be recorded as follows: | Shares | Stock | Sell
Short | Buy To Cover | Cash
Equity | | | | | | | 100 | D | $100 | $80 | $5,000 + | | 100 | D | $100 | $130 | $5,000 – | | 100 | B | $300 | | $15,000 |
The first row shows a Profit of $2,000 [(100 - 80) x 100].
The second row shows
a Loss of $3,000 [(100 - 130) x 100].
The third row is still open. Q:
How will I remember my Short Sale position(s) during the course of the game?
A:
The B/B is obligated to remind players of their Short Sale positions when they
land on a Trade Space. However, all players are responsible for assisting the
B/B, particularly when there are many players in the game. Q:
What is a Margin Call?
A: A Margin
Call is an urgent request given to a player by the B/B when their Short Sale Position
exceeds twice their Cash Equity. Q:
Is the B/B the only one allowed to issue a Margin Call?
A:
No. All players have the responsibility of assisting the B/B; particularly when
there are many players in the game. Q:
How does the B/B determine when a player should receive a Margin Call?
A:
To determine if a player should receive a Margin Call, simply compare the current
market price of the given Stock with the sell short price recorded in the table
[see above]. If the current market price is higher than the sell short price
recorded in the table, a Margin Call should be issued. Q:
When should the B/B issue a Margin Call to a player?
A:
The Broker/Banker may issue a Margin Call only when a player lands on a Trade
Space. Q: What happens during
a Margin Call?
A: In a Margin Call,
the player must either raise more cash equity or cover some short position(s)
to satisfy the margin requirement. Q:
What's an example of a player receiving a Margin Call?
A:
Suppose Linda holds the Short Sale position recorded in the third row of the table
above. Now, suppose Beryl [B] is currently trading at $350 per share. It is Linda's
turn to roll and she lands on a Trade space. She immediately receives a Margin
Call from the B/B, because Beryl [B] is trading $50 higher than when she sold
it short [350 - 300]. Linda must either give the Bank a Cash Equity amount of
$2,500 [(100 x $50) ÷ 2] or cover her short position to satisfy the margin requirement.
She decides to cover her short and Loses $5,000 [(300 - 350) x 100]. Finally,
Linda redeems $10,000 from the Bank [$15,000 - $5,000]. The $10,000 is the balance
from her original Cash Equity after the $5,000 loss. | 
