HOW SHORT SELLING WORKS

Selling a stock short means you sell a stock now, when the share price is high, and then purchase the stock at some time in the future when the share price has declined. Which is another way of saying Buy Low and Sell High, except in reverse order.

So how can you sell something that you don't own? You can't, which is why you borrow the shares that you sell. You borrow the shares from somebody else (like your broker), promising to "repay" those shares of stock back to the broker at some time in the future. How will you make that repayment? When you purchase the shares in the future, you'll then immediately turn those shares over to your broker, and your loan is repaid. Your position is then closed. If the stock has declined in value as you expected, you will have made money on the trade. If instead the stock price increased, you would have lost money.

Some investors think short-selling is riskier than a typical long-only strategy. We believe short-selling is one of the most profitable tools available to investors and if used prudently can improve investment results significantly.