What if the Stock Goes Down? 
You can make just as much if not more money when the stock goes down. This is called going “short”. Stocks tend to fall in price much faster than they rise.
A short sale is actually the sale of a stock that isn't owned by you, but that you promise to be delivered. Even though it sounds confusing it's actually a simple concept.
When you short sell a stock, your broker lends it to you and you have to pay him back. When the price drops, you buy back the stock at the lower price in the open market, profiting from the difference and paying back your broker. If the price rises, you will have to buy it at the higher price than you sold short, so you will lose money.
For example:
- You believe COST's ( Costco Wholesale ) price is going to drop. You want to "sell short".
- You sell short 1000 shares at $49.59. So what you are doing is borrowing 1000 shares from your broker at $49.59. You now owe your broker 1000 shares or $49,590.00.
- One week later COST is $48.59 and you want to "cover" your short, taking your profit.
- You buy COST at $48.59. Now you can return your broker the shares you borrowed for $48.59. So you borrowed 1000 shares of COST which was worth $49.59 and covered it back for $48.59 for a $1,000 profit.
Short sale price: 49.59 1000 shares with shares lent by your broker.
Buy back price: 48.59 1000 shares with shares from the open market, replacing those borrowed.
Profit : $1.00 x 1000 shares = $1,000.00
TradeWithPros does not recommend borrowing stock to short. We suggest put options. By purchasing options, risk is limited to the price paid.