How Do You Short a Stock?

Shorting a stock means selling borrowed shares on the premise of making money as they stock price goes down. To short, an investor sells shares not currently owned, and they buy shares at the target price to cover the borrowed shares and pocket a gain.

If someone shorts 100 shares of a stock at $6 per share, and then buys to cover at $4 per share, the profit is the $2 drop in price per share, or $200. Shorting stock is more complicated than the straight-forward buy and sell trading process. Traders must pay interest on the borrowed shares. Therefore, a person is required to set up a margin account to short, which means they have the ability to borrow against the account.