what is short selling?

Have you ever heard someone use the term Short Selling, or simply Shorting and wondered what they were talking about?

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Look no further, shorting is actually quite basic and fundamental to investing.

We all know that if we think that a stock, say APPL, is going to go up we can buy some APPL stocks and be proud of our investing decision.

But what if we thought the price was going to go down? We would do the opposite of buying APPL, we would sell it.

But what is short selling?

Seems simple enough, but how does selling APPL make any sense? If we don’t own APPL how do we sell it, and even if we did, how does selling it help other than to mitigate the losses we would have suffered?

Enter Short Selling

Shorting a stock means that you borrow the stock, sell it today, and then have to buy it back later to cover your position.

Therefore if you sold it at today’s price, and you believe the price will go down, you can buy it back later for less.

This is a very basic example but its that simple!

To learn more head over to Wall Street Survivor.