This is another strategy used to play the stock market. First, you borrow a bunch of overvalued shares from a friend, with a promise to give them back in a while. Then you sell them. When the price goes down, you buy them back and return them to your friend. You made money.

The technical name is selling short.

Borrowing them from a friend can be accomplished by selling futures. That means that you agree to give someone a bunch of shares in the future, and they give you cash now. You could just buy the shares now and wait, but you wouldn't make any money. If you think the price will go down, wait until then. Then buy cheap and keep the rest of the money.

If you were wrong and the price goes up, you can lose a lot of money, since you are committed.

When attempting to buy low, sell high, you can't lose more money than you put in. But with sell high, buy low, you can potentially lose an infinite amount of money, since you are committed to give someone a certain amount of shares when the time comes, no matter what their price is then.

Log in or register to write something here or to contact authors.