It is common for traders to profit from stocks that rise in value. Nevertheless, some traders take advantage of falling stock values through short selling to make money.
In short selling, a stock is sold that is not owned by the seller, but is promised to be delivered.
The idea of short selling is to borrow a stock that you believe will fall in price from your brokerage and sell it on the open market.
Then buy the stock, hopefully for a lower price than you sold it for, and pocket the difference after repaying the loan.
Suppose a stock is trading at $50 per share. You borrow 100 shares and sell them for $5,000. As soon as the price drops to $25 per share, you purchase 100 shares to replace the ones you borrowed, making a $2,500 profit.
It may seem simple to sell short, but shorting involves significant risks. Short selling is not recommended for novice traders and speculators unaware of the substantial risks involved.
Traders who are knowledgeable about short selling and market dynamics can book significant profits from short selling.