I just cannot, for the life of me, understand how you make a profit by it.
In: Economics
Short selling is borrowing something and selling that thing. The idea is that the price will go down between the time you borrow it and the time you return it and that you can buy it back at the lower price prior to returning it.
simplified example:
You borrow 100 shares of XYZ company that are trading at $100 per share (you have borrowed $10K worth of XYZ shares) on October 1. You will pay the person you borrowed them from some interest rate (say 10% per year).
On Novmber 1, XYZ shares are trading at $80 per share. You buy 100 shares at $80 and return them to the owner along with $82.50 in interest (10% annually divided by 12 months = 0.825% for one month of borrowing)
You got $10K when you sold the shares you borrowed. You paid $8k for the shares when you returned them. You paid $82.50 in interest so you mad $1917.50 in profit
Of course, if the price of XYZ stock goes up then you lose money.
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