Can you use cash from shorting stocks to buy stocks

[TheDawn]

So what good is shorting a stock do then? You can't use the money you get from selling it short.

The purpose of shorting a stock is not to get the funds to invest again. It's to take advantage of a possible and potential downfall in the stock's price. Should that short position doesn't pan out the proceeds that you get from shorting the stock is the only thing that you can use to pay back. Think of the proceeds from shorting the stock as the money that you earmarked to buy back the stock in the future to return it back to the broker.

 

[rbigsby]

Let's say, in a simple situation, a company has 100,000 shares outstanding, and I own all those shares. You short 1000 Shares and sell them to Joe. Now Joe owns 1000 Shares and I own 100,000 Shares. Your broker borrowed 1000 shares from my broker to delivery these shares to Joe.

So what you're saying is that you the owner of all 100,000 shares has no control over them since someone you don't even know is allow to short them? Doesn't make alot of sense. What if you didn't want anyone playing the shorting game with your 100,000 shares?

The company pays as dividend of $0.50 for each of the 100,000 shares out there. I own 100,000 shares but my broker only has 99,000 shares in book entry and Joe has 1000 Shares.

So what you're saying is you are expecting a dividend payment of $50 for those 1000 missing shares in your brokerage account. Since Joe is the owner of those missing 1000 shares, he got a dividend payment of $50 I guess. So it seem like Joe is the one that owes you the dividend payment. Since he is the person that has your 1000 shares.

Someone must make good on the 1000 shares lent from my account.

The only person that can is Joe because he's the only other person that a dividend was paid to other than you. And that dividend belongs to you because you own all 100,000 shares.

Also and this is not to belabor the issue but the person that sold the 1000 shares short who are they possibly going to be able to buy them back from? There's only 2 possible people and what if neither of them is at their computer selling?

 

[marc82much]

No. Long stock, long calls and short calls go into the type 2 Margin account while Short positions go into the Type 3 Short account. They do not offset and the money in the Type 3 account does not belong to you. It was from the sale of stock you did not own.

I really love Robert being in this group. No nonsense, straight up good intel. Thank you so much Robert Morse!