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Selling Short Law & Legal Definition

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."

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