What does a “Short seller” mean in the stock market?
theye talking about “short sellers” all over the news, but what is it mean?
also whats going o n witht he stock market, why is dow / dji up by so many points.
Dovi Information outomotive
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Short selling is borrowing shares (in most cases from your broker) and selling them with the intent to later cover (buy them back at a lower price and return them to your broker). You profit if the stock goes down as in this example:
You borrow and sell 200 shares XYZ for $10 each
You then have $2000
The price of XYZ drops to $8 and you buy 200 shares for $1600. You return these shares to your broker (covering) and netting $400 profit.
You borrow shares of a stock from your broker and sell them. You have to return those shares to your broker, however. You hope that stock goes down in price so you can buy them back and make a profit.
For example: You borrow 100 shares of a stock from your broker, the stock is 50 per share. You sell them on the market and make $5,000.
Let’s say the stock goes down to $45 per share. You buy those 100 shares back and return them to your broker and you only have to spend $4,500 of the $5,000 you made, so you make a $500 profit.
Short selling is an investing technique based on the idea or the perception that the market will go down. The investor borrow the stocks from his broker and inmediately sells theses stocks. Afterwards, when the markets has plummeted, the investor buys these stocks again and give it back to the broker. The difference between the stockprice he seld the stocks and the once he paid for them afterwards are the investor’s profits.
A clear example:
-borrow 100 shares (100*$10=$1000)
-shareprice $10
-price decline to $5
-repurchase the stocks (100*$5=$500) and pay back the stocks borrowed.
-investor’s profit ($1000-$500=$500)