They get their share back and I’ve still got the £10 I sold it for, minus the £5 I had to pay to replace it. So I wait for the StuffCo share price to fall to £5, then buy it and return one share to the person I borrowed from in the first place. I no longer have the share I borrowed but I will have to give it back at an agreed time.
If I sell it straight away, that puts £10 in my pocket. If I expect the share price to fall (because I think it is a rubbish business: badly run, for instance, or selling outdated products), I can borrow a share in StuffCo from someone who has it, in return for a small fee. If the price rises to £15, I can then sell my stock for a profit of £5 per share.
If I believe the share price is going to rise, I’ll simply buy shares at £10.
Let’s say StuffCo (a made-up company) has a share price of £10. It’s a way of making money by betting that a company’s share price will fall. But a good place to start is by understanding what short-selling is – and how the Wall Street wizards who do it could end up being wrong-footed by a group of amateur traders.
