The sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is
motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price
to make a profit. Short selling may be prompted by speculation, or by the desire to hedge the downside
risk of a long position in the same security or a related one. Since the risk of loss on a short sale is
theoretically infinite, short selling should only be used by experienced traders who are familiar with its
risks
Consider the following short-selling example. A trader believes that stock SS which is trading at $50 will
decline in price, and therefore borrows 100 shares and sells them. The trader is now “short” 100 shares
of SS since he has sold something that he did not own in the first place. The short sale was only made
possible by borrowing the shares, which the owner may demand back at some point
10) Locate
[Sumit] : Locate goes together with Short selling , securities lending and prime brokerage. I have
explained this with the below example.
A Buy side Hedge fund wants to sell a security SS that it doesn’t own. In order to do so he has to borrow
that stock from someone, the prime brokers usually lend the stocks to its clients which is called
securities lending ( discussed above under prime brokerage). While sending the short sell order to the
executing broker the hedge fund has to inform if he has someone to lend that stock to him ( Which iscalled Locate). In FIX , below tags are used to provide this info:
54=5 ( Denotes Short Sell)
114=Locate Reqd ( Y/N). If 114=N, that means the client already has borrowed those stocks from
someone and does not want the executing broker to arrange. There is a custom tag ( GS/Redi) use 5700
which will have the Locate code of the party who lended the stock. For example , if Bank of America is
the prime broker who lended the stock to client A, tag 5700 should contain 5700=BAML.
If 114=Y, that means the client hasn’t borrowed the stock from anyone and wants the executing broker
to do so. Tag 5700 will not be present if 114=Y.
5700= Locate code of the party lending the stock