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.
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At the simplest, shorting in when you borrow a share of stock from somebody else then sell it. At some point in the future, you need to give the share back to the original person to repay them, so you buy one from somebody else.
You could do this with anything that has many identical copies, like, say, flour. I could borrow a pound of flour from you and sell it to a baker, then, sometime later, buy a pound of flour from somebody else and return it to you. As long as the flour is identical, you don’t know that I sold it.
The goal is that, should the value of the stock go down, you make money. If I sell the share for $100 and can buy the replacement a month later for $90, I made $10 in profit. Naturally, the person I borrow the share from will want payment for the lending, basically interest.
The drawback is that, should the price go up, I lose money, and there is also no limit as to how much money I could lose. If, in the previous example, the stock instead raises to $1000, I lose $900.
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