“Useful-to-know Financial Terms #5: Covered Short-selling and Naked Short-selling”

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“Covered Short-selling”: covered short-selling occurs when an investor borrows stocks of a company and sell them at a lower price and return them to the lender within 3 days before the settlement date.

“Naked Short-selling”: naked short-selling occurs when an investor shorts a stock without having or borrowing any stocks. Naked short-selling is banned in Korea because of the risk it poses to the market transparency.

* Both covered and naked short-selling take place when an investor speculates stock price to fall and intends to pocket the difference in the current stock price and the price on the actual settlement date.

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