If you've ever wondered what shorting a stock is all about, check out this brief intro to the concept. Basically, shorting a stock involves reversing the order of the old adage to "buy low, sell high," as it's where investors aim to sell high and then buy low.
As an example, if you wanted to short Carrier Pigeon Communications (ticker: SQAWK), your brokerage will "borrow" shares from a SQAWK shareholder's account and proceed to sell them for you at the current high price. The proceeds of the sale go into your account. Then, once the share price drops, you'll "cover" your short by buying shares on the market at a lower price to replace the ones you borrowed. If you shorted SQAWK at $35 and covered when it fell to $20, you made $15 per share (less commissions).
You can't short any stock, though. To be shorted, a stock needs to qualify as "marginable." That means investors can purchase shares on margin, with funds borrowed from their brokerages. Most stocks on the New York Stock Exchange are marginable, and many Nasdaq stocks also qualify, while stocks trading for less than $5 per share often do not.
Learn more in these eye-opening Fool articles on shorting:
