Explaining Short Sales, GameStop, and Reddit

In case anyone wants to understand what’s going on with the stock market and Reddit and GameStop I wrote an explainer. Feel free to use:

So short selling is betting against a company in the hopes of getting a profit when that company fails. I’ll use an example that leaves out some extra details but will give the gist:

Let’s say you wanted to make money on a short sale. You borrow a bicycle (representing stock) from a broker who can loan it to you, instead of you purchasing it.

You have to return the bike.

You take the bike that you borrowed and sell it for as much profit as you possibly can.

You now have sold a borrowed bike.

You owe a bike to your broker.

You go out and hope the bike company has gone to shit and that you can buy a bike at clearance that’s the same bike you just sold for way more, to return it to your broker.

The difference between what you sold the bike for (hopefully high) and what you bought the new bike you’re returning (hopefully low) is your profit.

You only make a profit if the bike company is going to shit. They have to practically be giving bikes away they’re doing so bad. There’s no demand for their terrible bikes. No one wants them.

Now let’s say you sold that bike for what you thought was a really great deal. You take that money and go in search of the bike at lower price ONLY TO FIND a new bike club (coughredditcough) got really interested in that bike and they bought all the bikes up and now that bike is in demand and hard to get. They’re refusing to sell any of their bikes.

You’re about to learn a hard lesson about supply and demand.

You HAVE to return the bike to the broker or pay some MAAAAJJJJJJOOOOOOOR not returning bike fee.

You have to buy the bike (at an inflated cost due to demand) at a loss, or really hope you’ll get some money to cover your ass because each day you can’t buy a bike you’re up shits creek.

You just lost at bike gambling. Also known as the short sale stock market.