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Shorting a stock is like renting a car for a year - then selling the car, and still paying rent. At the end of the year, you buy an identical car for a lot less
by stephengillie 8y ago
Shorting a stock is like renting a car for a year - then selling the car, and still paying rent. At the end of the year, you buy an identical car for a lot less, and give it back to the car rental company. Cars are fungible in this example.
- mkagenius 8y ago> Shorting a stock is like renting a car for a year only if stock goes down. Stocks moves up too, in that case the analogy doesnt work.
- stephengillie 8y agoThe analogy still works - you would just extend the car rental. And yes, sometimes short sellers do lose money on this transaction.
- mkagenius 8y agoI always thought that the price of a car always go down.
- stephengillie 8y agoNot always, but you're right it's uncommon for cars to appreciate in value. And yes it does stretch the analogy pretty thin.