While most investors who play the stock market buy stocks in the expectation that they will go up in price - in the market's vernacular, they 'go long' - it is also possible to 'sell short' if you think a particular stock will go down in price and you want to try to make money that way.
When you sell short, you really are selling shares you don't own. Your broker borrows the shares from his firms inventory, or from one of the client accounts that include this particular stock. At some point. you have to "cover" you short position, meaning you eventually must purchase shares to replace those borrowed.
If the price of the stock goes down, as you anticipate, you can purchase those shares at a lower price and thus make a profit.
For example, if you sell XYZ Corp. short when it is selling for $60 a share, and it later drops to $40, you "cover" at $40 to replace those borrowed shares. Your profit is the $20 difference between what you got for selling shares on loan and what it costs to replace them.
Short selling usually is associated with out-and-out speculation.
But Alfred Winslow Jones, a former writer for Fortune magazine, founded the first "hedge fund," A.W. Jones and Co., in 1952, on the idea that simulateously going "long" and "short" in an investment portfolio was a conservation strategy that gave protection if the market suddenly should reverse. In effect, the bets were hedged.