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Example of Short Selling

Short selling, also known as shorting or going short, is based on a process of selling borrowed securities. The idea is that a person borrows stocks, hoping the price will go down, to reduce the value of the borrowing when the payment is due.

Examples of Short Selling:

Stock A is borrowed at a value of $1000 over a term. The borrower sells the stocks at that price. If the value of the stock goes down during the term of the loan, say to $500, the borrower repays the $500, being the value of the stock, and makes $500. If the stock goes up, say to $1200, the borrower must repay that amount, losing $200.