Short selling occurs when an investor borrows shares, sells them, and hopes to buy them back later at a lower price to make a profit.
For example, an investor who believes a publicly traded retailer will miss earnings borrows 1,000 shares and sells them at $40 each. When the stock drops to $25 after a weak quarterly report, she buys 1,000 shares to return to the lender, pocketing a $15,000 profit from the short selling transaction.
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