B. Selling Short
2. Making money when prices fall
- Example: You believe the price of a stock will decrease and you borrow 100 shares from your broker. You sell the shares at $40/share today. One month from now the price falls to $35/share and you buy 100 shares back to return to your broker.
- Profit: $4000 - $3500 = $500
- Return: $500/0 = infinite