What is a short sale?

A short sale happens when an investor sells shares what he doesn’t own yet, this is useful when there’s a sign that prices will fall thus the investor making profit on it. Also on short sales there’s a requirement that the borrower has to return the same amount of shares in the near future. With short sales people are making money in the short run and it’s opposite to the long run where people make money over an extended period of time. For example an investors makes a short sale of 100 shares, which individually cost $30. Now if the prices fall let’s say $20 then in his account is deposited $3.000 and he has to buy up 100 shares for $20 each to make the short sale happen and in the en he will walk away with $1.000 profit from this transaction. There are also margin rules set to prevent investors to take up unlimited short sales. The short sale is an advanced strategy in the stock market and novice traders should stay away because it hold limitless losses. As we all know it market prices can drop to $0 but how much they can climb is limitless so that’s why it’s dangerous to use this strategy.