How does stock shorting work?

Question

Specifically, how does one “borrow” or “sell” stock they don’t actually own?

In: 8

Answer 1

Step 1: You borrow a stock from broker.

Step 2: while borrowing, you and broker agree on contract

Step 3: contract states you are borrowing stock from broker to sell it and then purchases the same stock from open market.

Step 4: After purchasing it back you are returning that stock back to broker on or before specific date and time.

Why short it?
If you feel that stock will be valued less in next 4 hours then you short sell it at $100, and if its market value goes down in 4 hours, let’s say $90. Then you purchase it back at $90.

$10 is your gross profit.