Stability of a Broker: What if your broker goes bankrupt? Could you lose equity in your account?
The Securities Investor Protection Corporation is roughly analogous to the FDIC for investments.  There are some important differences like a lack of 100% guarantee you get all of your funds back. The SIPC understands you invested knowing there was some risk, and therefore you take that same risk in getting your money from a failed brokerage.  However there is still a level of commitment and trust that lessen the risk of investing in the wrong place. Also, do not typo the acronym at your work computer.  In the US (and perhaps elsewhere) it is a racist term, and you are likely to get some bad search results. http://www.sipc.org/how/brochure.cfm "Look at the link to the SIPC. I don't know exactly what you mean by ""runs out of funds,"" but the SIPC will replace shares of stock stolen from your account, and up to $100,000 in cash.  The real risk is when a shady brokers sells you shares in a stock that becomes worthless, that's when ""buyer beware"" kicks in. No help there." "Careful with the ""stock stolen from your account"" thing.  SIPC protects investors against broker/dealer insolvency.  Don't think they provide protection against theft."
You would generally have to pay interest for everyday you hold the position overnight.  If you never close the position and the stock price goes to zero, you will be closed out and credited with your profit. If you never close the position and the stock price keeps going up and up, your potential loss is an unlimited amount of money.  Of course your broker may close you out early for a number of reasons, particularly if your loss goes above the amount of capital you have in your trading account. "And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position.  When you open a short position, your are expecting that the stock will decline from here.  In a short position you are borrowing shares you don't own and selling them.  If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from.  Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest).  Opening and closing a short position is two trades, a sell then a buy.  Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800.   In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question).  It's not advisable to open a short position this close to the ratio requirement.  Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money.  If the stock goes up such that you've exhausted your buffer you'll receive what's known as a ""margin call"" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses.  And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin).  When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go.  There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position.  You place your order, either market or limit or whatever, and it executes when your trade criteria occurs." +1 to YosefWeiner. Let me add: Legally, technically, or at least theoretically, when you buy stock through a broker, you own the stock, not the broker. The broker is just holding it for you. If the broker goes bankrupt, that has nothing to do with the value of your stock. That said, if the broker fails to transfer your shares to another broker before ceasing operation, it could be difficult to get your assets. Suppose you take your shoes to a shoe repair shop. Before you can pick them up, the shop goes bankrupt. The shoes are still rightfully yours. If the shop owner was a nice guy he would have called you and told you to pick up your shoes before he closed the shop. But if he didn't, you may have to go through legal gyrations to get your shoes back. If as his business failed the shop owner quit caring and got sloppy about his records, you might have to prove that those shoes are yours and not someone else's, etc. It might be easiest to think of stock exchanges like brokers.  If you buy a home, and your broker goes bankrupt, you still own your home, but you could not sell it without the aid of another broker.   Same with stocks, you own the stocks you buy, but you would be unable to either purchase new stocks or sell your stock holdings without an exchange. "General advice is to keep 6 months worth of income liquid -- in your case, you might want to leave 1 year liquid since, even though your income is stable now, it is not static (i.e., you're not drawing salary from an employer).   The rest of it?  If you don't plan on using it for any big purchases in the next 5 or so years, invest it.  If you don't, you will probably lose money in the long term due to inflation (how's that for a risk? :).  There are plenty of options for the risk averse, many of which handily beat inflation, though without knowing your country of residence, it's hard to say.  In all likelihood, though, you'll want to invest in index funds -- such as ETFs -- that basically track industries, rather than individual companies.  This is basically free portfolio diversity -- they lose money only when an entire sector loses value.  Though even with funds of this type, you still want to ensure you purchase multiple different funds that track different industries.  Don't just toss all of your funds into an IT index, for example.   Before buying, just look at the history of the fund and make sure it has had a general upward trajectory since 2008 (I've bought a few ETFs that remained static...not what we're looking for in an investment!).  If the brokerage account you choose doesn't offer commission free trades on any of the funds you want (personally, I use Schwab and their ETF portfolio), try to ""buy in bulk.""  That way you're not spending so much on trades.   There are other considerations (many indexed funds have high management costs, but if you go with ETFs, they don't, and there's the question of dividends, etc), but that is getting into the weeds as far as investing knowledge is concerned.   Beyond that, just keep in mind it'll take 1-2 weeks for you to see that money if you need it, and there's obviously no guarantee it'll be there if you do need it for an emergency." In many places there are legal requirements to do so, essentially made to prevent brokers from selling high-risk products as if they were deposits with guaranteed safety of your funds. There also may be prohibitions on offering high-risk/high-return products to beginner customers, e.g. requiring accredited investor status claiming that yes, you really know how this works and are informed of the involved risks or you're not allowed to invest in that product.  Making untrue claims of being not a beginner may limit your options if your broker does cheat you in some manner, as it gives them a solid argument that you confirmed that you understand how their pump-and-dump scheme works and are yourself responsible for losing your money to them. Okay- I follow that.    When we look a shorting a name -  what makes that an equity transaction rather than a debt one? I guess how does that differ from investing in a bond?    I recognize the simplicity of this question.    Thanks. So an investor would get their principal back in interest payments after 13.5 years if things remained stable, not accounting for discounting future cash flows/any return for the risk they are taking.  The long maturity helps insurance companies and pensions properly match the duration of their liabilities. Still doesn't seem like a good bet, but it makes sense that it happened.