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shorting is identically borrowing. You borrow the stock from someone who owns it, and resell it at the current price. Then later down the road, you buy it back
by zaphod12 6y ago
shorting is identically borrowing. You borrow the stock from someone who owns it, and resell it at the current price. Then later down the road, you buy it back at the lower price and return it to the original owner. You have made money on whatever that difference is. This is not a metaphor, this is how shorting operates.
It can easily go over 100% if the person you sell it to also lends it to someone to short (and they have no clue that the share they bought was involved a short, already).
Note - this is why it's possible to lose your shirt when you are shorting. Eventually you will need to return that stock you've sold, which means buying it at whatever the price is. So if it goes WAAAY up, you lose a lot of money. In contrast to buying a stock, where you can only lose your position.
- DaiPlusPlus 6y ago> Eventually you will need to return that stock you've sold What happens if you don't?
- MauranKilom 6y agoIt's not "you" who is doing it, it's your broker. And the reason they will 100% do that is because they want to keep their SEC license. The rest of the problem is between you and your broker, settled in real $.
- deetsb 6y agoAs another responder says; a broker will close out the position for you and come after you for whatcha owe them.
- bigwavedave 6y agoNot the parent or even a participant in this thread, but thank you- this is the first time I've ever been given an explanation for shorting that is clear, concise, and understandable to me.