“I heard Rush talk about this on his radio program yesterday. For me, very informative.”
Ditto. His explanation in the first few minutes of the show was the first time any of this made sense to me. Before that it was gobbledygook.
Selling short........ you believe a stock is going to go down. If you have the right type of account (margin account) the broker that does your trades will let you sell the stock even though you don’t own it. He loans it to you. So you sell 100 shares for 100 dollars per share. If the stock goes down to 50 you can buy the stock for 50 per share and pay off the loan from your brokerage firm. And you netted 50 dollars per share
If it goes up to 150 you have to buy it for 150 per share to pay off the loan. And you lost 50 per share..
The key is you have to have enough cash in the account all the time to pay off the loan. So you could sell other stuff you have in the account to keep the cash necessary. There is no limit to how high a stock can go, so your loss is unlimited. If it exceeds what you have in the account the broker will do a margin call and force you to liquidate your position (pay off the loan)