what is selling stocks short?

Answer 1

Entering into an agreement where you think at a given future date, the price of a stock will be lower than today's price.
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Answer 2

its a little bit of an involved answer, but bear with me and you will fully understand.

Before we talk about short selling..lets look at regular buying..

if you BUY 100 shares of company ABC at $10..you pay $1000 plus commision and this is called taking a LONG Position. Long always means you are buying something outright.

Now, to make a profit, you want to buy low and sell high, right...so you want the share prices to rise above $10, and then you will make a profit. Ultimately, if things turn against you, you can only lose the $1000 you invested if the stock prices goes to zero.

Buying low and selling high is the objective.



Now, lets look at short selling. Its the exact opposite. As a short seller, you have to borrow the stock from your stock broker, and you sell something you do not own!!! If this sounds crazy..it is!! Its Extremely risky.

So you Sell 100 shares which you have borrowed, at $10.
The idea is that you want the stock price to go lower, so you can buy it back at a lower price.!!! In this scenario you are selling high and buying low!!

Ok so what happens if the stock doubles or triples in price once you have short sold it...well you can face unlimited losses because there is no limit to high the stock price can go.


This is why they say people can make money no matter what direction the market is moving. If the market is moving up, the people who are LONG make money. If the market is going down, the short sellers make money.

Answer 3

You sell first, hoping for the stock to go down later so that you can buy back at a lower price. But not everyone can do - you need an approval from your account and maintain certain balance (to take care of the upward movement risk).

I am assuming you are asking for academic purposes as there are other things to know before you can or should do this.

Answer 4

Selling a stock short is when you borrow a stock from someone else through your stock broker, sell it, and then buy it back at a lower price. You get the keep the difference from the price you borrowed it at, to the price you pay to buy it back.

Answer 5

it is selling a stock you do not own with the intention of buying the same no. of shares back at a lower price. so the advantage here is you have the ability to gain without shelling out any or much capital. but there is also the risk that prices will not go down as you expected so you will be buying at a higher price thereby experiencing a loss.

Answer 6

as simple as this....the opposite of buying. If you are new to trading it is best to keep this idea simple, it can b confusing. Basically you Sell short the stock (or enter your position), and if that stock goes down you will make money when you BUY to Cover (exit your position).

keep it simple