Who Stole your 401K, Savings, and Taxpayer TARP
Dr. Ileana Johnson Paugh
Selling Short is a legal form of stock buying when you borrow shares you do not own from your broker, sell them, and pocket the money. When the price of that stock drops, you buy the number of shares at the lower price and return them to the broker, plus interest and commission, and you keep the difference. When you buy the shares back, you have covered the short position.
The risks are as follows:
the stock could go up instead of down
the drop in price may take a long time (Timing is important since you are paying the broker interest.)
if the stock goes up more than you made from short-selling the stock, you will be forced to pay more to cover your short position
Selling short tends to increase when the market is booming. Short sellers believe that a correction is due, a drop in price, especially if the economy does not seem to grow as fast as stock prices are rising.