What is shorting?
Shorting (selling something you don’t own) is the process by which we can make money from a stock price going down.
Normally, if we expect a stock to rise we buy it and then sell it at a profit later once it has risen. But if we think the stock price will fall we don’t want to buy it, because if it falls and we sell it we would lose money.
So we borrow it from our broker, and sell it. If the price drops, we can then buy back what we sold for a cheaper price. The difference is our profit.
Beware
1) If you short and the stock price rises, you will lose money.
2) If you don’t have a stop loss in place, you can theoretically lose an infinite amount as the stock price rises.
Useful Tips
1) If you understand the process, the risks are almost identical to going long.
2) If you borrow from your broker, you will need a RegT Margin account.
3) The equivalent in the options market is to purchase a 'Put'.
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