If you buy a security with the expectation that the price will rise, you are "long" the stock. But you can profit from stocks that go down, too. This is an advanced investing technique called "short selling." When you short a stock, your broker arranges for you to borrow stock from a pool of shares maintained by brokers for that purpose. The shares are then sold and the proceeds from the sale are credited to your brokerage account.

At some point in the future, you must "close" the short by buying the same number of shares (adjusted for any splits that might have occurred) in the market and returning them to the short pool. If the price of the stock has gone down while you were holding it, you can use the money you received from the sale of the borrowed shares to buy the stock, and you will have cash left over. That's how you profit from a stock that goes down. Unfortunately, if the stock has gone up, you will have to add some money of your own when closing out a short position. That's how you lose money when a stock goes up.

Properly done, shorting can work as a hedge against a falling market. Improperly done, you can lose even more money on a short than you would lose if you invested in a company that went bankrupt. Imagine that you buy a company for $50 per share and it goes belly up. You've lost $50. (You should have shorted it!) But imagine shorting a stock for $50 that subsequently triples. When you close that short position, it will cost you $150 a share to buy back the shares you sold for $50. Many a short seller has been caught in this trap because brokers won't let you hold on to a short position unless you have money or other assets to cover the short at all times.

The basics of the shorting transaction are straightforward. Most online brokerages have a box to check for a short sale or a "buy to cover." Occasionally there won't be enough shares in the short pool and a short sale won't go through. There are also rules about shorting stocks that are dropping fast, so you can't always assume a short sale will be as smooth as a straightforward purchase, but in most cases it is.

Shorting stocks may be a legitimate way to make money (just like being a slum landlord is) but it crosses the line when short traders unfairly bad-mouth companies for their own profit. Be careful if you become an active short player not to become "overzealous" in your quest for profits -- I've heard that the SEC is investigating the destabilizing effect of unscrupulous shorters on the market in general, and heads may eventually roll.

Hi Lisa G and Mojo
I prefer using actual money that I have in my own pocket. For instance I bought 400,000 shares of one stock at 0.0018 and than another 138,235 at 0.0017. If the stock goes down to 0.0006 than Ill buy a little more to cover my loss with MY OWN MONEY. I'd rather be in a great depression with my own money than borrowing it from someone else. You can buy the same stock twice, but it is better to do it with patience and YOUR OWN MONEY. I can't stress that enough. I'm out $6,000 this year all with my OWN money and proud of it! I understand the market better now since joining real pennies and feel confident that I will make it back on my own. Great Topic Lisa G.

Really good post Lisa keep them coming