What does short selling or covering a stock mean?

nashjohn30: What does short selling or covering a stock mean?
I heard from my professor that stocks can be bought, sold, sold short and covered. But what exactly does selling short and covering mean. How would I apply selling short and covering when it comes to buying stocks?
Why does the seller need to borrow the stock from someone else’s account? If he’s the seller it’s his stock right? I get the buying it back at a lower price part, but why does the seller have to buy the stock back if it goes to a higher price and make a loss?

Answers and Views:

Answer by wartz
When you short a stock, you believe it is going to go down in value. The seller will be dealing with a broker and borrows the stock from someone else’s account and sells it. If the stock goes down in price, the seller buys it back for the lower price and makes a profit. If it goes up the seller has to cover his position by buying it back at a higher price and shows a loss.

Answer by sam k
Simulation games are usually played on the internet, where people can experience the thrill of investing in the stock market without any risks, costs or any fear of losing money when and if they make a poor investment decision.

Many teachers and professors of banking and finance are now using stock market simulation games to teach their students about the rudiments of investing in stocks. Most stock market simulation games come with a fee to get started, but there are some that are free of any charge.One need not ve prior knowledge about the stock market to join.

This is how stock market simulation games usually work:

First, players must register. After registration, players are given an initial sum of “virtual” money to invest in companies of their choice. Players build a portfolio of stocks by buying and selling shares in companies. Most stock market simulation games use real-time market data.
objective of most stock market simulation games is

Answer by Todd
In short selling, the seller does NOT own the stock he is selling. That’s why he borrows it. For example, Microsoft (MSFT) is currently selling at $ 28.50 per share and I don’t own it. But I think it’s going to go down in price so I decide to short sell it. On my trading platform I just choose ‘sell short’ rather than ‘buy,’ specify the number of shares I want to sell and hit the execute button. Behind the scenes, my brokerage allocates the shares for my short sale from their own holdings, or from the account of one of their customers (they don’t know about it, and they are at no risk because of the short sale). Those shares are sold on the open market to someone who was looking to buy MSFT.

Let’s say the stock does drop over the next few weeks to a price of $ 26. I decide to ‘cover’ my short position (which just means buying stock on the open market and returning it to whomever it was borrowed from. Again, my firm does this for me and it all happens nearly instantaneously). The stock price declined by 10%, so I made a 10% profit.

That’s it in a nutshell.