Short Selling

[Guest]

What is it
When an investor bets on a stock price to drop instead of rise.

How does an investor do that? 
Let’s say you think Facebook is overvalued at $109 per share and you want to short one share. Here’s how it might play out:

• You’d call your broker and ask to borrow one share of Facebook (he might lend you a share from one of his other clients who already owns the stock).
• You sell that one share in the market, netting you $109.
• Facebook’s stock then falls to $89 over the next two weeks because word gets out that Zuckerberg is still on MySpace.
• You then buy the stock back, which is known as “covering” your position.
• Finally, your broker replaces the one share you bought back into the original client’s account—leaving you with $20 left in your account (you sold at $109 and bought it back $89).
• Of course, there are always fees and commission so you won’t net $20 on the dot.