iMinds - Short Selling

Learn about Short Selling with iMinds Moneys insightful fast knowledge series.

Short selling is the practice of selling borrowed stock at a high price and then buying back the stock at a lower price. A short seller expects to profit from the fall in a stocks price. The more common investment practice is to go long, that is, to buy stock with the expectation of the price rising in the future. Simply, a short transaction sells high and buys low, while a long transaction buys low and sells high.

A basic example is as follows. An investor believes that Company A stock is overpriced at $60 per share. The investor then borrows 100 shares and sells them for $6000. The price of Company As shares then fall to $20. The investor buys 100 shares at $20 for $2000. The investor then returns the shares that have been borrowed and makes a $4000 profit.

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