What Does Short Sale Mean?

In the stock market, a short sale is the process of borrowing a stock or security to sell with the intention of actually purchasing the stock at a later date. The short sale is a common tactic in all stock markets used by all investors to profit from sinking stock prices. Rather than the usual "buy low, sell high" tactic used in investing, short selling allows the investor to sell high and later to buy low.

How a Short Sale Starts

A short sale begins by borrowing a set quantity of a stock or security to sell at today's prices. In effect, the short seller is selling a stock that he does not, at this time, own.

How a Short Sale Ends

Later, that same seller would need to purchase an equal quantity of that same stock or security. It is in the investor's best interests to do this after the stock price has decreased significantly.

Purpose of a Short Sale

A short sale is one of the more traditional methods of making money when a stock is expected to fall, rather than rise. The more a stock's value drops during a short sale, the more money an investor will make.

Fees Involved in Short Sales

The fees involved in short selling are typically equivalent--or at least similar--to the fees involved in normal market transactions, although some brokers have been known to charge small surcharges for short selling.

Short Sales in Real Estate

In real estate, a short sale is something entirely different. A short sale can also refer to the sale of a property for less than the amount currently owed by the seller on its loan or mortgage, usually for the purpose of eliminating as much debt as possible.