How To Make Money Selling Stocks Short

Investors often want to know how to make money selling stocks short. First, an investor has to know what selling stocks short means. In simple terms, selling short is the opposite of going long. That is, short sellers make money if the stock goes down in price. A short sale is betting against a particular stock. It typically involves borrowing shares, selling them, and waiting for the stock's price to go down before buying the shares back. The short seller keeps the difference between the higher selling price and the lower repurchasing price.

1. Set up a margin account with your broker. In order to sell stocks short you must open a margin account with enough funds to cover the difference in price if a stock rises instead of falls. 
2. Find a stock you believe  is going to go down in price. Do not pick a stock on a whim. Chart  a stock's  daily activity and look for news that will impact it negatively and cause its share price to drop.
3. Contact your broker to see if you can short a stock. Not every stock keeps a reserve of shares set aside for short-selling.
4. Put in the short order. Decide how many shares you want to short and place the order.
5. Watch the stock carefully. Selling short requires constant monitoring of a stock's performance so you can make a decision on buying it back if you have made a profit.
6. Be aware of the Up Tick rule. The rule states you cannot short-sell a stock if it is declining in price. You must wait for an "up tick" or rise in price before you can complete the trade.
7. Remember, knowing how to make money selling stocks short is an advanced trading strategy.  Investors are advised to be aware of the risks in this form of trading. If you are wrong and a stock continues to go higher, and you do not cover, or buy back your shares, you can sustain unlimited loses.