A Short Look at Shorts

The traditional way to make money in the stock market is to "buy low and sell high." But many investors ask us about another way to profit called "shorting," where the trick is to "sell high and buy low."

Selling short is a way investors make money on stocks that they believe are going to decline in price in the near future. The important rule to remember is that shorting, while offering a smart way to make bearish bets, carries significant downside risks.

To sell a stock short, you borrow the shares from your broker, then sell the shares and hold the money and wait for the stock to fall. If it does fall, you buy the shares at the lower price and give them back to your broker, who gets a commission and interest for his troubles. ...