, Columnist
'Go to Zero' Isn't Great for Short Sellers
It's hard to bet on disaster, because that's when bets tend not to get paid off.
How far do you want it to go down?
Photographer: Spencer PlattThis post originally appeared in Money Stuff.
The way short selling works is that, if you want to bet against a stock, you borrow it from someone who owns it, and then you sell it to someone else. Eventually, you go out into the market, buy the stock back, and deliver it back to the person who owns it. If all has gone well, you will buy it back for less than you originally sold it for, and the difference will be your profit. Well, part of the difference will go to pay a fee to the stock lender, who will generally charge you a percentage for each day that you borrow the stock. But hopefully the stock will go down a lot, and the difference between your selling and buying price will more than cover that fee.