How can you sell stocks if you do not have any? This is from a lecture of financial market class. The professor discussed the following: you do not have any stocks. But you sell 200 stocks to someone and you get the money, say $200. then if the stocks price goes up, you lose money. I didn't quite understand this part. Please help me, thank you.

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    It's fine to ask homework questions. It's customary to explicitly state that it's a homework question because that will affect how people may format their answer. – Matthew Nov 11 '14 at 20:36
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    you borrow the stock and immediately sell it for cash. If the price goes down you buy it back at a lower price (and give the shares back to the rightful owner), you keep the cash that was leftover from buying it at a lower price. On the other hand, if the prices goes, you eventually buy the stock (and give the shares back to the rightful owner), but now you lost money because you have no cash leftover from the initial sell. Instead you had to use more cash to get buy those more expensive shares. – CQM Nov 11 '14 at 20:50
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    The FAQ Specifically addresses homework questions (money.stackexchange.com/help/on-topic) They are generally allowed and don't need a homework tag. – JohnFx Nov 12 '14 at 0:40

"Shorting" is the term used when someone borrows a stock and sells it at the current price to then buy it back later at hopefully a lower price. There are rules about this as noted in the link that begins this answer as there are risks to selling a stock you don't own of course.

If you look up various large companies you may find that there are millions of shares sold short throughout the market as someone does have the shares and they will need to be put back eventually.

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    Yes and they usually pay a fee in order to borrow the stock before short selling them. If you are in a country that allows CFD trading (eg UK or Australia) you can use CFDs to short stocks without paying any fees - in fact if interest rates were sufficiently high you might even get some interest when you hold a short position open overnight. CFDs are not allowed in the USA. – Victor Nov 11 '14 at 20:27
  • @Victor Man, all the good stuff isn't allowed in the USA... :-( – Michael Nov 12 '14 at 1:05
  • 。Then how about North Korean.... – Kun Nov 12 '14 at 1:54
  • @kun - if you live in Nth Korea you would know better than me if they allow CFDs !!! – Victor Nov 12 '14 at 3:22
  • @Michael - yes I know I love trading CFDs. Started a new strategy at the start of September and am up about 20% since then. The commission on the are very low as well. – Victor Nov 12 '14 at 3:25

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