Trading, Accounts & Prohibited ActsQuestion 184 of 398
An investor sells stock short. Under what condition does the position become profitable?
a.When the stock's price rises
b.When the stock's price falls
c.When the company pays a dividend
d.When the stock splits
Explanation
A short seller borrows shares and sells them, hoping to buy them back later at a lower price. The position profits when the stock's price falls; if the price rises, the short seller faces a loss that is theoretically unlimited.
Law Reference: Securities Exchange Act of 1934Practice all 398 questions free — no signup required.
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