Selling a stock short is a bet that the price of the stock will decline. It is the opposite of a long position, which involves investing in a company in the hopes the price of the stock will increase.
In a short position, the investor borrows the stock and immediately sells it. The proceeds from the sales are deposited into the investment account. The position is closed when the investor buys back the same stock (known as covering a short).
If the stock has declined since the sale, the investor makes a profit on the difference, less commissions. The goal is to sell high, and buy low.
Is Shorting Stocks a Good Idea?
Shorting can be an effective way to add diversification to a portfolio. Investors need to take steps to limit losses by monitoring positions closely.