What’s short selling, and why do traders do it?
Short selling flips the old adage: “buy low, sell high”. Anticipating that a stock’s price will drop, a short seller performs this action in reverse: first they sell high, then they buy low. The tricky part is that the short seller doesn’t actually own the shares they want to sell.
To accomplish this, you’d actually borrow shares of stock via TradeKing and then sell them in the open market, without ever owning the shares. Then you must buy identical shares back at a later date to return to the owner, again via TradeKing. Your goal as a short seller is to purchase the shares back for less cost in the future and net a profit. If the market value of the shares increases during the period when you’re borrowing them, however, you can suffer serious – even unlimited - losses.
You can't buy shares at a "premium" when you never own them.
