How to explain shorting to your girlfriend 🐷
Short with potatoes (you have no potatoes)
You believe: Potato prices will fall next week.
Step 1: You "borrow" 100 kg of potatoes
• You have 0 kg.
• A neighbor lends you 100 kg (you must return exactly 100 kg to him later).
Step 2: You sell them immediately on the market
• Today: 1 €/kg
• You sell 100 kg → you get 100 € cash.
Step 3A: Price falls (you win)
• Next week: 0.70 €/kg
• You buy back 100 kg for 70 €
• You give the neighbor back 100 kg.
• You are left with 30 € profit (minus “loan fee”/interest/market fees).
Step 3B: Price rises (you lose)
• Next week: 1.30 €/kg
• You have to buy back 100 kg for 130 €
• But you only have 100 € from the sale → you are short 30 €
• 30 € loss (plus possible loan fee).
Short with potatoes (you have no potatoes)
You believe: Potato prices will fall next week.
Step 1: You "borrow" 100 kg of potatoes
• You have 0 kg.
• A neighbor lends you 100 kg (you must return exactly 100 kg to him later).
Step 2: You sell them immediately on the market
• Today: 1 €/kg
• You sell 100 kg → you get 100 € cash.
Step 3A: Price falls (you win)
• Next week: 0.70 €/kg
• You buy back 100 kg for 70 €
• You give the neighbor back 100 kg.
• You are left with 30 € profit (minus “loan fee”/interest/market fees).
Step 3B: Price rises (you lose)
• Next week: 1.30 €/kg
• You have to buy back 100 kg for 130 €
• But you only have 100 € from the sale → you are short 30 €
• 30 € loss (plus possible loan fee).