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SELLING SHORT

investing wednesday word of the week Sep 26, 2018

Definition

Selling short aka short selling is when an investor thinks a stock will go down so they "short it". Essentially, the investor borrows shares of stock or another asset he or she doesn't own, sells it, pockets the money with the promise to replace the property someday, and hopes the asset declines in price so it can be repurchased at a lower cost, the differential becoming the profit.  They make money on a dip!

Why It's Important
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During the financial crisis of 2008, short sellers were making money in the market while everyone else was losing.  A great movie that details what happened is "The Big Short".  Be careful when short selling because if it's not done right, it could bankrupt you!  Keep in mind that you are borrowing shares so if the stock goes up you will be in debt to the broker you borrowed from.

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