Can you please truly explain like I’m five? Like with bubblegum or cookies as an example? Because I have tried understanding how this works several times and I just do not get it.
In: 0
So you know how you can borrow money from the bank to buy a car or house? You can similarly borrow shares of stock from your investment brokerage, which you then sell. At a later point in time, you buy shares in the stock (hopefully at a lower price) to repay that loan of shares. The difference between what you initially sold for and what you paid to repay the shares is your profit.
Say you want to short XYZ Co. and borrow 100 shares. You sell them at $100, or $10,000 total. 3 months later, the stock has fallen to $80 and you decide to cover your short so you buy 100 shares at $80, or $8,000 total. The $2,000 difference is your profit on the trade.
Literally want a kid example? OK…
Your brother gets a new LEGO set that cost $100 for his birthday in October. You ask if you can borrow it for a month. You return it to the toy store for $100 refund. A few weeks later, Black Friday sales start and you can buy the same LEGO set for $80, so you buy it and return it to your brother. And you have $20 left.
Latest Answers