A Leerverkauf (English short selling) is a form of the stock exchange speculation. From a Leerverkauf the salesman expects from an expected course purge of a security to profit. It now sells papers, which it (still) does not possess and hopes to be able to buy this in the future more cheaply. This functioned due to circumstances that at the stock exchange the temporal sequence, in which purchases and sales take place, for which height of obtained net proceeds does not play a role. Here a contract is closed (this is the actual stock broking), which obligates the salesman to supply effects in some days. Depending upon stock exchange can last this 3 days (Frankfurt) until 5 days (London), until to a stock broking the papers obligation in accordance with to be supplied with have. With effective pieces (printed on paper, which one can still touch), this can last still longer. However most securities exist today only digitally on accounts (the exhibitor only one document for all effects possesses s.g. global document).

Legal situation in Germany

Actual are possible in Germany (separation principle see BGB "§ 433 exp. 1 P. 1 "obligated"). The BGB permits it to lock (act which creates an obligation) and this some days later fulfill first the contract (fulfilment business). This is not however permitted after German stock exchange right. Thus "the emptysaleswilling must borrow itself "only securities with a fund, a bank, an insurance or a like. For this will in % of the exchange rate value of the papers due and with these can it up to the expiration of the contract work.

Procedure with shares

First shares from another depot are borrowed (security-borrow). The lender has in addition a contract with a factor or the empty salesman that certain shares can be lent. The empty salesman pays for this a fixed interest to the lender and receives securities. It sells these over the stock exchange. If the course actually falls, the buy-back to the lower course and afterwards a return of the shares take place. The course difference less costs makes the profit. With other development of the share quotation appropriate losses can occur. Here the empty salesman must cover himself up to risen courses the stock exchange, in order to be able to return the borrowed shares.

The expression Leerverkauf refers thereby in each case to the Depotbestand of the salesman. Only shares can be sold, which lie with an investor in the depot.

are a usual strategy with Hedgefonds, which can bring the share quotations of an individual value with relatively small Kapitaleinsatz substantially under pressure. This speculative Kursbeeinflussung is strongly criticized in the public opinion.

Example (without taxes and expenses)

The shares the test AG are acted up-to-date at the stock exchange with a course by EUR 100 for each portion light. A large insurance possesses 1,000 pieces of these shares and does not intend to sell it in next time however gladly an auxiliary yield with these shares would gain.

The insurance makes the offer to lend their test AG shares for the duration of 6 months against a of 5% to a speculator (Short Seller) and it finds also someone (with appropriate soil quality), which enters into this business.

The speculator paid to the insurance the of EUR 5,000 and receives for it the right of disposal over the 1,000 pieces of test AG shares, which he sells also immediately in expectation of sinking courses.

• possible scenarios for the speculator:
  • 1.Der course of the share falls up to the return time around 10% on EUR 90. It can redeem thus the 1,000 pieces of test AG shares around EUR 90,000 (and to the insurance to return), which it originally sold around EUR 100,000. The speculator makes thereby a profit of EUR 5,000 (10,000 profit on exchange - 5,000 Related to its initial Kapitaleinsatz of EUR 5,000 for the that means a profit of 100% during a change of course of the share of only 10%.
  • 2.Der course of the share is at the return time directly highly as at the sales time. The speculator buys 1,000 shares the test AG around EUR 100,000, in order to return it to the insurance. The speculator makes a loss of EUR 5.000. Related to its initial Kapitaleinsatz of EUR 5,000 for the that means a loss of 100% with equal lasting share quotation.
  • 3.Der course of the share rises up to the return time around 10% to EUR 110. It must redeem thus the 1,000 pieces test AG shares around EUR 110,000 (and to the insurance to return) which it originally sold around EUR 100,000. The speculator makes a loss of EUR 15.000. Related to its initial Kapitaleinsatz of EUR 5,000 for the that means a loss of 300% during a change of course of the share of only 10%.
• Result for the insurance:
  • Independently of the course process of the share she gained (additional) a yield of EUR 5,000.
  • If the course of the share falls up to the return time around 10%, the investment strategy of the insurance (stops of the share) leads to a loss of the current book value of the shares (depending upon legal situation in the appropriate country at the end of the yearly or the quarter to be however perhaps only balanced must). If the insurance would have sold in place of the rental business of the share and would later have bought, you would flow the change of course in its entirety. By the fact one can recognize that the instrument of the Leerverkaufs is dependent on the safety thoughts of the shareholders in particular, who acquire additional collateral by decreased net yields.

Procedure with Futures and Forwards

With Terminkontrakten such as Forwards and Futures designation selling simply the salesman side short. An owner of a "Short contract" does not have to be physical, as also with share empty sales, in the possession of the article. It can settle the Leerverkauf before the Verfallstermin, by acquiring a Long contract moving in opposite directions and as profit or loss books the difference of the two prices.

Procedure with options

Options permit due to their construction the Leerverkauf of the base value in form of a standardized security, to the PUT option. These options win at value, if the base value at value loses.

Related links

• Security-borrow and Leerverkauf

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