Shorting a stock means selling a stock that the seller doesn’t own. Short selling happens when an investor borrows a stock and sells it on the open market. The seller is willing to buy it back later for a lower price. Short sellers usually bet on and profit from a fall in the stock’s price.
The short-selling aim is to sell high and then buy low. For example, you think a company is overpriced at $100 per share. You borrow 100 shares from your broker and sell them for $10,000. Time ticks on and as you expected, the stock price drops. At $90 per share, you buy 100 shares for $9,000 and return them to your broker. You keep the $1,000 profit.
What if the stock price rises to $110 per share? At $110 per share, you buy 100 shares for $11,000 and return them to your broker. You generate a loss of $1,000. Short-selling can offer huge gains, but the losses can accumulate quickly and infinitely.
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