How Can Short Selling Make Money?
One way to make money on stocks for which the price is falling is called short selling (also known as “going short” or “shorting”). Short selling sounds like a fairly simple concept in theory—an investor borrows a stock, sells the stock, and then buys the stock back to return it to the lender. In practical terms, however, it is an advanced strategy that only experienced investors and traders should use.
Short sellers are wagering that the stock they are short selling will drop in price. If the stock does drop after selling, the short seller buys it back at a lower price and returns it to the lender. The difference between the sell price and the buy price is the short seller’s profit.
Key Takeaways
- Short sellers are wagering that a stock will drop in price.
- Short selling is riskier than going long on a stock because,…
