Selling short is a term used in finance to refer to certain stock transactions.
Selling short is accomplished by an investor who:
- Decides that a company's stocks will decline in value.
- Borrows some of those stocks, usually from a broker.
- Sells those stocks at the current price, making a lot of money.
- Watches the market.
- When the value of the stock goes down, buys enough
stocks to return to the broker. The investor is buying the stocks at a
much lower price than before, so even though they have to pay out money,
they are going to be left with a profit.
- Gives the replacement stocks back to the broker. The
investor has now "closed the short sale."
