Real World Short Selling Analogy

Ok, so short selling is selling high and buying low. Let's take a look at how this transaction would happen with tangible goods:

Joey is a down-and-out college student always looking for some fast cash and his roommates, Kevin and Brian, happen to always have nice things just lying around.

Last moth, after Kevin bought a new mountain bike for $2,000, Joey happens to notice that the same exact bike is for sale in the classified for $1,950.

So, Joey takes Kevin's mountain bike to the resale shop and receives $2,000.

Then he turns around and buys the same bike for $1,950 from the ad.

Joey's just netted $50 and no one is the wiser.

Yesterday, Brian just bought a brand new video game console for $900, but the local electronics store has the same console listed at $750.

So, Joey takes Brian's console to the resale shop and receives $900.

He then buys the same game console for $750 at the electronics store.

Joey's again come out on top by gaining $150 on someone else's goods.

Joey makes his money by selling high and buying low.

To read how short selling works in the trading environment read here.