I just cannot, for the life of me, understand how you make a profit by it.
In: Economics
Pretend bacon and cheese sandwiches (I’m hungry) are selling for $50 each right now. I think they’re going to go down in price tomorrow. I borrow a sandwich from a friend and promise to pay them back a sandwich later. I sell that sandwich to you for $50. The next day, we find out I was right, and bacon and cheese sandwiches are selling for $10 each. I buy one for $10, and give it back to the friend I borrowed it from.
I sold a sandwich for $50, and bought one for $10. My net profit is $40.
The downside is if the price goes up, I will lose money. This is what makes short selling risky, because there’s almost no limit to how high it can go, but it can only go down to $0.
It’s still just “buy low, sell high”, except maybe it’s better to say it as “sell high, buy low”.
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