I just cannot, for the life of me, understand how you make a profit by it.
In: Economics
Do you mean with stocks? When you’re shorting a stock you’re betting that the stock price will drop. You ‘borrow’ the shares at the current price (basically a contract that you’ll officially purchase them at a future date) sell them immediately at face value to someone else, and then hope the share price drops by the time the contract term comes due.
Say Apple stock is $230/share and you think that in 2 weeks it’s going to be lower. You borrow 10 shares for $2,300 and sell them for $2,300 to someone else. You have two weeks to pay for those 10 shares that you borrowed (per the terms of the contract you bought). If Apple dips to $200/share in 2 weeks you pocket the difference, so you end up paying $2,000 for the shares you sold for $2,300.
The tricky part is if the stock goes up you can be caught losing money. If in two weeks Apple stock is $300/share then you have to pay $3,000 for the 10 shares you already sold for $2,300, so you lose $700.
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