Market Watch is among a number of news sources reporting that China will begin allowing margin trading and short selling on the Shanghai and Shenzhen Stock Exchanges.

The China Securities Regulatory Commission proposed the new rules and China's State Council has approved the proposal, according to a Bloomberg report.

The exchange in Shanghai has lost 56% of its value in the last year. The government hopes the new move will boost trade and help turn China's markets around.

Short selling is the practice of borrowing a security (or commodity futures contract) from a broker and selling it, with the understanding that it must later be bought back (hopefully at a lower price) and returned to the broker. Margin trading is the use of borrowed money to buy securities with the expectation of magnifying profits. Margin trading can lead greater returns, but is also very risky.


Photo courtesy of iStockphoto, Image# 6890529