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Short Selling

Short selling is where somebody opens a position in a stock by selling rather than buying it. If the stock then goes down they make money and to close their position they buy the same amount back as they sold. Simple enough.

However, historically, the way this worked was you had to borrow the stock. You sold it in the market then bought it back and gave it back to the original owner.

What has happened, however, with the rise of derivatives (spread betting, options, CFD's, etc.) is that people have shorted stocks WITHOUT owning the stock in the first place.

It is this "NAKED" short selling that has seen unnaturally aggressive selling of stocks during the 2008 Credit Crunch.

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