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Short selling: the two key types

The onshored Short Selling Regulation, Assimilated Regulation (EU) 236/2012 (the UK Short Selling Regulation), applies in the UK and includes a definition and includes a definition of short selling in Article 2.

Generally, short selling is understood to mean a technique whereby a trader arranges to sell a security that he does not own. The trader aims to make a profit from first short selling a security and, at some point in the future, buying it back at a lower price in order to return it to the original holder.

Short selling exists in the cash equities markets and there are also derivative equivalents to short selling. For example, a Short position can be taken through index futures and options and spread bets.

In summary, there are two types of short selling:

1. •

   covered short selling—this is a practice whereby a short seller borrows shares from a shareholder in return for a fee so that they can be delivered to a buyer at settlement. The short seller thereafter