I assume this is related to stocks and investing, but what does it mean short a stock? Like I’ve seen people asking if it’s time to short Netflix.
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One way on to make money on the stock market is to buy stock when it is cheap wait until it gets more expensive and then sell it.
If you believe the value of a stock will rise you buy it now and sell it later when it is hopefully worth more.
Similarly if you own stock and believe it is going to lose value you can sell it when it is worth a lot. once it has lost value you can always buy the stock back for fraction of what you sold it for and you end up with the same stock you had before and some extra money.
Those two options are simple enough, right?
If you think the stock is going up buy now sell later. If you think the stock is going down and you already own some, sell now and buy back later. In both cases you end up owning with what you started with plus some extra money.
But what if you think the stock is going down and you don’t own any stock to sell now?.
How can you make money betting on a stock that you don’t own going down?
That is where short selling comes in.
You basically go to someone who owns stock that you think is going to go down and ask them to borrow it from them.
You sell the stock that you borrowed and wait. Later when the stock has gone down in price you buy some back and give that back to the person you borrowed it from.
This is short selling.
You essentially bet money on the price of stock going down over time.
The obvious problem is that if you bet wrong, you have to buy the stock back at more than you sold it for to give back what you borrowed.
Another issue is that people won’t let you borrow their stock to gamble with for free. They could always make money by doing what you are doing themselves. So they ask for money to be allowed to borrow stocks to gamble with and you hope that you make more profit than you paid in borrowing fees.
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