Just as margin buyers are optimists, expecting prices to go up, short sellers are pessimists, expecting prices to go down. To profit from this anticipated drop as a short seller, you borrow shares of a stock from your broker, sell — or short — the shares, and pocket the money gained from the sale.
If the price goes down — as you calculated it would — you buy back shares at the lower price and return the number of shares you borrowed to your broker. After you pay interest and commissions, you expect to have made more on the initial sale of the borrowed stock than it cost you to sell and rebuy the shares.
The strategy can backfire, however, if the stock price goes up rather than down, or even if the price is stable for an extended period, since interest charges will mount. You may decide to cover your short position by buying shares at a higher price than you sold them for. That will leave you with a loss.
