Short selling (stocks)

"Short selling" of stocks is a way to make money from a decline in price of a stock over time.

• In other words, if the investor thinks a stock will lose value over time, the investor can make money via a "short sale"
• the concept is: "sell to open / buy to close"

1. Borrow a stock from someone else
   1. usually from a stock broker
2. "Sell to open"
3. "Buy to close"
   1. = Buying the stock back later at a cheaper price (hopefully)
   2. the Short Seller

• Steps

1. Sell to Open:
   1. borrow stock and sell at current price
      1. the borrowed stock is owed back after a period of time
      2. sell the borrowed stock at current price
      3. keep the cash
2. Buy to close
   1. the stock must be returned to the original owner after a period of time.
   2. so the Short Seller must buy the stock at the new price
   3. then return the shares to the owner
   4. the difference between the stock price at "Sell to Open" versus "Buy to close" = profit or losss

Profit scenario:

Loss scenario:

Schematic representation of physical short selling in two steps. The short seller borrows shares and immediately sells them. The short seller then expects the price to decrease, after which the seller can profit by purchasing the shares to return to the lender. (wikipedia)