Quote:
Originally Posted by glassman
Thanx Bryan, it makes more sense. I dont have a total grasp on it logistically speaking. I guess it would be like if your a broker for a house, agreed for a price and you sell it for less, make the difference between the two?
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To use your analogy.... it would be like selling a house you borrowed from your neighbor, for $500,000 and hoping the buyer defaults and you could buy the house back for $400,000 and return it to the neighbor you borrowed it from.
If, in the meantime, the real estate market gets 'hot' - and the house value shoots up to $650,000 and the neighbor is demanding the return of his house - and you have no other option but to go to the buyer and lay $100 bills on the table until the buyer decides to sell back to you.
Sometimes - when a "short" is "obvious" to many... that trade gets "crowded" (using terms in quotes that you'll hear on TV etc) and everyone decides to cover... the stock can shoot up just because everyone has to buy the shares to cover their short positions.
Basically - it's a very risky trade.