Current Events > Can someone explain this to me (short selling stocks)

(+) Yeah! (+)

Seen it mentioned in many movies like Quantum of Solace and Wallstreet.

Also heard stories of people in congress doing this along with 9/11 conspiracy theorists.

How does one make tens of millions selling stock before a disaster event?

I don't understand.

I understand it that you are borrowing an amount of stock to sell at todays prices. Then at some point you actually have to buy that stock at the future markets price at that point. If the value of the stock went down in that time you have made money. If it went up you have lost.

If one were to short a stock right before it collapsed due to a huge terrorist event you could make a fortune. At least I believe that is what these movies and conspiracy theories are suggesting.

DarkAssassin89 posted...

I understand it that you are borrowing an amount of stock to sell at todays prices. Then at some point you actually have to buy that stock at the future markets price at that point. If the value of the stock went down in that time you have made money. If it went up you have lost.

If one were to short a stock right before it collapsed due to a huge terrorist event you could make a fortune. At least I believe that is what these movies and conspiracy theories are suggesting.

Oh.

Thanks!

I thought it was stock they had already owned, not borrowing up front.

I borrow some stock at $10 a share and sell them immediately. The price goes down to $4 a share so I buy the amount I borrowed and return them to you. Bam, there's my profit of $6 a share minus fees and interest paid while borrowing and waiting for the price to go down.

As far as I can tell it's like sports betting a team loss, but for stock options.

1337toothbrush posted...

I borrow some stock at $10 a share and sell them immediately. The price goes down to $4 a share so I buy the amount I borrowed and return them to you. Bam, there's my profit of $6 a share minus fees and interest paid while borrowing and waiting for the price to go down.

Good summary.

So who loses all of the money?

The trading firm that accepted the stock loan in good faith?

Steffenfield posted...

So who loses all of the money?

The trading firm that accepted the stock loan in good faith?

The person who loses the money (or rather the value of their investment goes down) is whoever bought the stock that you sold and the stock price subsequently craters.