Also known as short sale or shorting or going short. It is the sale of an asset that the investor purchased by borrowing money from his broker or from the exchange.
- The investor borrows the asset.
- He sells it to a buyer at the current value.
- He waits for the value to go down and buys it again keeping his profit.
- He gives the asset back to the broker or exchange.
In case of a decline in price, the investor will profit. In the event of a price increase, he will lose money. The money lost will usually be the margin (security deposit) that he left with the broker at the time of borrowing.
The same effect can be obtained with derivatives without having to borrow assets.