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ELITE ISSUE 15 , JANUARY 2020 P AGE 17

SHORT SELLING IN

STOCK EXCHANGE

Mohamed Fawzy, Third Level , Economics

:Practical example on short-selling
As we know, one of the most important elements of G DP growth is
investment. The investment comes primarily through a decision by

the Corporate Finance Department to finance the com pany by
borrowing or offering shares. The company offers sh ares in the
Egyptian Stock Exchange to raise the capital, and s hareholders expect
profits to be distributed at the end of the period. Later, those shares
will be traded in the stock exchange with the aim o f transferring
ownership of the capital and achieving profits from those transactions
in the event of improved company performance.

As illustrated above, the two lines follow the same trend. We note that
the decline in the Egyptian market index or the increase in the
fluctuations occurs three months after the decline or rise in the
emerging market index. For example, the Emerging Markets Index
reached the highest peak as shown next to the red arrow, and by
knowing this information, the investor expects the Egyptian market
index to reach the peak after two or three months as shown next to the
Short-Selling definition:
red arrow. This information can be used to buy shares at the highest
Short selling occurs when an investor borrows a sec urity (with a
peak next to the red arrow and sell them at the lowest trough next to
certain interest rate borrowing), and sells it on t he open market, the green achieving profits by the difference in the price of buying
and selling
planning to buy it back later for less money. Short sellers bet on,

and profit from, a drop in a security's price. It c an be simplified in
How did Egypt receive the short-selling?
these 4 steps:
The financial regulatory authority granted 51 local brokerages out of a
1) The client borrows the shares, which he expects to decrease in
total of 140 companies, a license to practice short selling activities.
the future in exchange for a specific interest, and undertakes to
However, some complaints were found concerning the high price of
recover the borrowed shares within a specified peri od.
the electronic operating system, which reached $ 9,500. The Egyptian
2) The borrower sells shares at the old price befor e it decreases.
Stock Exchange administration negotiated with technology companies
3) He then buys the shares sold again at a lower pr ice.
to reach lower prices and succeeded in finding the price of 3,900
4) Finally profits are achieved through the differe nce between the
dollars, and $2000 after further negotiations.
price of buying shares and the price of selling the m
Furthermore, the short selling mechanism was only granted 30

indexes. The Egyptian Stock Exchange indictor was expected to
recover after the decision to implement the mechanism. What
happened, in contrary, was a drop in the main index. In my opinio n, it
is a good mechanism, but few know how to benefit from it due to th e
high risk. Because of that, the Stock Exchange worked on educating
brokerage companies about the new operating method. However, in
my opinion, the Stock Exchange should work to educate investors an d
citizens of the mechanism encouraging to invest in the Egyptian Sto ck
Exchange and achieve its goal of recovery in all indicators.

ELITE ISSUE 15 , JANUARY 2020 P AGE 17