EXPLAINED: Short Selling in 3 ways and with an example

What is Short Selling?

This is where you sell (go short) an underlying market at a high price, anticipate a drop in price where you’ll buy it back at a lower price for a profit.

How short selling works…

To understand this concept, I’m going to break it down into three explanations.
• One line
• Step by Step
• Visual

Explanation #1:
One line
Short selling is the practice of selling a financial market (such as a share, crypto currency, index etc…) that you don’t own with the intention of buying the same market back later on at a lower price for a profit.

Explanation #2:
Step-by-Step
1. You sell a number of shares, which you don’t own, at a higher price.
NOTE: You borrow the shares from a broker or lender.
2. After time passes, the market then comes down in price.
3. You then decide to buy back the shares and close your position for a profit.

NOTE: When you buy the position back, you automatically return the borrowed shares to the broker/lender and pay them a fee.

4. You will pocket the difference between the price from where you sold the shares and the price where you bought them back.

The Broker gets the shares back you get the profit – bada bing bada boom – DONE.

Let me know what other term you would like explained.

Trade well, live free.
Timon
MATI Trader