I just cannot, for the life of me, understand how you make a profit by it.
In: Economics
In short selling you “borrow” stock from someone for a fee. Let’s say it’s $5. So you pay them $5, they lend you the stock for a week. Let’s agree the stock is worth $100.
You are convinced the stock is about to tank, you immediately sell it for $100.
The next day the stock does indeed tank and is now worth $50. You rebuy the stock for $50.
At the end of the week you give your friend the stock back.
You made $100 from the stock sale, you spent $5 (the borrowing fee) + $50 (buying the stock back) = $55
So $100 – $55 = $45. You earned $45 profit from “shorting” the stock.
Obviously this would have been a great deal for you. Imagine what would happen if the stock didn’t crash and instead went up to $200 per share. Oops.
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