Eli5: What’s and how shorting a stock is/works?
In: 5
Imagine you think the price of a company’s stock is going to go up, you would probably buy some stock, hoping to sell it later for a profit. Now imagine you think the price is about to go down, you’d probably sell it before you lose money (or lose potential profit). In this case you actually still “make money”, because you can buy the shares back later for a lower price when the price goes down. You still have the shares, plus some additional money.
What happens if you think the price will go down, but you don’t already own any shares? What you could do is borrow the shares (promising to return *shares* not money). You can sell the shares immediately, wait for the price to go down, then buy them back for cheaper. When you return the shares, you pocket the difference. This is called shorting.
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