Selling Short on VSE

This post is for all of you that want to learn how to sell short on the virtual stock market game we have going, and also for those who want to understand it.

Basically, you want to sell a stock short. You do what you normally do when you want to buy a stock. Go to Make a Trade, enter the stock symbol, hit Go. Then enter how many stocks you want to buy. After that, you'll see a drop down box that defaults to "Buy". Click that, and select "Sell Short". Then make the trade.

Now I know what you're thinking. How the hell does selling something constitute buying it!? We'll get back to that in a second.

When you want to "sell" the stock, you do what you'd normally do to sell it. When you see the drop down box that defaults to "Sell", select that and instead choose "Buy To Cover". This essentially sells the stock, but instead of losing money by the stock going down, you make money (and visa-versa).

So how does this really work?

When you sell short a stock, you in reality are selling it. What really happens is you borrow the amount of stock from your brokerage firm, and then you sell it to someone for that price while reserving the right to buy it back whenever you feel. When the stock goes down, you buy it back, or as it's called "Buy To Cover", for the new market price, and then you give back the borrowed stock to your brokerage firm.

A few examples to help explain this. We'll assume no commission rate to make the calculations simple.

Stock A is worth $10. I sell short 10 stocks of it, making $100.
Stock A goes down to $9. I buy to cover, losing $90.
Net gain: $10.

Stock B is worth $10. I sell short 10 stocks of it, making $100.
Stock B goes up to $12. I buy to cover, losing $120.
Net loss: $20.


I know what you're thinking: why would I ever buy the stock back? Well, you have to, it's not even your stock to begin with. You just reserved the right to sell it, and if you lose that right to sell it, you can be forced to buy it back. So you have to, at some point, get the stock back.

There you go: Selling Short in a nutshell.