A stock broker trades shares he does not own with an obligation of later repayment, and in the hope that the price of traded shares will fall. He 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

The described process is known as short selling, where a trader borrows and sells shares with the hope of buying them back at a lower price to make a profit. Insider trading involves using non-public information to make trades, churning involves excessive trading to generate commissions, arbitrage trading involves exploiting price differences in different markets, and going long involves buying shares with the expectation of their price increasing.

A Stock Broker Trades Shares He Does Not Own with an Obligation