Can someone please explain the meaning of 'shorting' a stock with an example?
This is a gross simplification as there are a few different ways to do this. The principle overall is the same though.
To short a stock, you borrow X shares from a third party and sell them at the current price. You now owe the lender X shares but have the proceeds from the sale. If the share price falls you can buy back those shares at the new lower price, return them to the lender and pocket the difference.
The risk comes when the share price goes the other way, you now owe the lender the new value of the shares, so have to find some way to cover the difference. This happened a while back when Porsche made a fortune buying shares in Volkswagen from short sellers, and the price unexpectedly rose.
Rich's answer captures the basic essence of short selling with example.
I'd like to add these additional points:
I believe the term "short" comes from the popular phrase "I'm a little short..." which means you don't have enough money to pay for something.
In most cases, it implies the person will agree to sell you something even though you don't have enough money right now, and you can pay them for it later.
So in the case of stocks, they let you own the stocks without you paying for them at the time of the transaction. This implies they are giving you financial credit to get something now and pay for it later, similar to a credit card purchase.
The reason for selling a stock "short", is for when you believe the stock value will decrease in the near future.
Here is an example: Today Exxon-Mobile stock is selling for $100 / share. You are expecting the price to decrease, so you want to short the stock, which means your broker (i.e. eTrade, etc) allows you to borrow shares without paying money, and those shares are transferred into your account, and then you sell them and receive money for the sale. But you didn't actually own those shares, you only borrowed them, so you need to return the shares to your broker sometime in the future.
Let's say you borrow 10 shares @ $100, and you sell them at the market price of $100, you receive $1,000 in your account. But you owe your broker 10 shares, which you need to return sometime in the future.
A few days later, the share price has decreased to $80. Now you can buy 10 shares from the market at a total cost of $800. You get 10 shares, and return those shares to your broker. Since you originally took in $1,000, and you just paid out $800, you keep a resulting profit of $200