What is short selling?

A short sale is the sale of a security where the seller does not own the security, and a financial institution agrees to loan the security to the seller for purposes of the sale. If the stock price falls, the seller will be able to purchase the security in the market at a lower price to cover the short position. The securities purchased are then repaid to the financial institution and the investor can keep the profit.

For example, you borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.

Last updated July 2, 2020