I just cannot, for the life of me, understand how you make a profit by it.
In: Economics
Let’s say you agree to buy 10 apples from me. Today, they are $1/each, so we sign a contract at this price. But silly me, I don’t have the apples right now. So you give me a week to get you your apples. A week later, I am able to find apples at $0.50/each. So I buy 10 of them knowing I agreed to give you 10 apples. I then sell those 10 apples to you at the agreed upon price. I spent $5 getting the apples, and earned $10 selling them to you, making a profit of $5 in the process.
But what about if the price of apples had gone up to $1.50/each instead of going down? Well, since I still signed a contract with you to sell 10 apples for $1/each. That means I have to now buy apples at $1.50/each just to sell them to you right away for $1/each, losing me $5 total instead of being a profit.
This is what short-selling is. It’s using a price now for a future sale. The person doing the selling is hoping the price goes down so they buy shares of a company later at a (hopefully) lower price to turn around and sell immediately at the previously agreed upon higher price. On the other side, the person doing the buying wants the price to go up, because then that means they got a huge discount on the share, which they could then immediately sell after obtaining the share for a profit.
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