Selling Short

Selling short is an investing strategy in the stock market. If you "sell a stock short" it means you think the price of that stock will fall, and if the stock price does fall you will make a profit. The way you arrange this is fairly complex; it first involves borrowing the stock, which you then sell. If the price of the stock falls, you can then buy the stock for less money than you sold the borrowed stock for, give back the stock to whoever lent it to you, and keep the difference as your profit. Here is an example: You borrow one hundred shares, which you then sell for $10 a share or $1,000. If the stock price drops to $5 a share, you can buy one hundred shares for only $500 and return the shares to the lender, and you will have made a profit of $500. But what if instead of falling as you had hoped, the price rises to $15. It now costs $1,500 to buy one hundred shares. This means that to return the borrowed shares to the lender, it will cost you an extra $500. If you wait too long the price may go even higher, increasing the amount you will lose. Because of the potential for serious losses and because of its complex nature, selling short is really only for experienced and knowledgeable investors. See also Put Option, Call Option, and Margin.