Stock Market Trading Videos
Ideally, you want to buy them back for less than what you sold them for so that you get to keep the difference between the two transactions. Selling stocks short often carry a higher amount of risk since your exposure is considered “infinite” to the upside. But keep in mind that there has never been a stock that went to infinity, nor is it likely that your broker will risk not getting their shares back by letting a multi-day rally go against you without issuing a margin call. The best example of explaining this is by giving an illustration: Let’s say that you borrow your friend’s iPod, with his permission, and while the iPod is in your possession, a random person on the street comes up to you and offers to buy it from you for the current price of $300.
Knowing the iPod is an older model, and that it is likely to become obsolete in the next few months, you gladly sell him the iPod. However, while you made a cool $300 by selling something you didn’t own, you still have to return an iPod sometime in the near future back to your friend. So you go on ebay and find the exact model (and for the sake of the illustration, the exact songs on it too!) for $240. You buy that iPod and you give it back to your friend. In the process you pocketed $60 even though you never owned anything at anytime and everyone goes home happy.