How does short selling work in stocks?
When it comes to stocks or other securities, short-selling is a way to make a tidy profit when planned well. An investor borrows stocks or other tradable securities that they believe will decrease in value from a brokerage or other party willing to loan them (typically for a small fee). There's a time limit on how long they can borrow those stocks before they must be returned or purchased.
Generally, what happens in a stock short sale is that the borrower will put the stocks up for sale immediately, hoping that the price will drop substantially. If the price does drop, they will buy the stocks back and return them to the owners, pocketing the difference between the initial sale price and the buyback price.
So, for example, if I borrowed 10 shares of XYZ, Inc. from my broker when they were worth $50 a share with the intention to short, I'd turn around and immediately put them up for sale. The magic happens when that stock drops in value, say to $35. I have to buy the stock back to return it by the deadline, but now I'm only paying $350 to buy those shares, and I get to put $150 in my pocket (This is a very simplified example).