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Shorting Stocks
from ClearStation.com
When you make a decision to act upon a stock, you are taking a position.
There are two kinds of positions you can take—a long or a short position. Taking a long position means buying the stock based on the belief that the price will rise. A buyer would take a long—or bullish—position.
The short position is a little more complicated. The idea behind shorting is that you sell the stocks and then buy them when the price falls, earning you a profit. Sounds odd, doesn't it? Here is how it works:
You decide that the price of a certain stock is going to fall. You call your broker and put in an order to short, "selling" the stocks at the current price.
Your broker rounds up the shares in order to sell them for you—he either loans you the certificates from his stash, from the account of
one of his other clients, or borrows them from another broker. Then, when the price falls, you buy the shares at the lower price, covering the number of shares that were borrowed.
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