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

Shorting a stock is taking out a short term loan. You’re borrowing from your broker, but instead of denominating the loan in dollars you’re denominating it in shares of a company.

After your broker agrees to lend you the shares, you sell them in the open market. At some later date you repay the loaned shares to your broker.

You usually do this because you need to borrow money from your broker to fund other positions and/or because you believe the stock will go down. There are other reasons you might short a stock having to do with risk management.