Selling a security not owned with the intention of buying it back later at a lower price.

Client says they want to short a # shares of a stock

Broker borrows # shares from clients

Broker then sells the # shares for client and puts the money in the client's account.

Covering a Short

Covering his Position

If the price drops, the client tells broker to cover his short.

Broker buys # shares from market at the current price using the client's money.

Broker returns the share to the client from which it was borrowed.

Client make a profit of the difference.

Going Long

Long Position

Buy a stock with the intention that it will increase in value.