Eli5: What’s and how shorting a stock is/works?

Question

Eli5: What’s and how shorting a stock is/works?

In: 5

Answer 1

It’s borrowing shares of stock to sell, with the idea that you’ll be able to buy back shares to pay back the loan when the stock is at a lower price.

You borrow shares from your brokerage in the way you might borrow money from a bank. You borrow 100 shares of XYZ Corp. You sell those shares for $80/sh and pocket the proceeds ($8000), but owe the brokerage X number of shares. A couple months later the company’s stock falls to $55 and you buy to cover your short position. The cost was $5500. So $8000-$5500 means you profited $2500 from the transaction.