Investment Journal

There is another strategy to make money with stocks and this is called short selling. If you sell short, it means you're expecting a decline in value of the stock so you can make money. Here how it works: To sell short, you borrow shares from your broker, then sell those shares and keep the money. Then you wait, expecting the price of the stock to drop. If it drops, you buy the shares at the lower price and return them to your broker.

For example, you borrow 100 shares to your broker and the current value is $10/share. Then you sell the 100 shares at $10/share and you get $1000. Then you wait, when the price drops to $7.50/share, you buy back the shares at $7.50 a share, give them to your broker and then keep the $2.50/share difference as profit. But if the price moves up to let's say $12.50/share and your broker needs their shares back, you have to buy back the shares at $12.50 so you can give them to your broker. A loss of $2.50 per share. Short selling is a strategy used by well experienced investors when they believe that stock prices will go down.