[Barkotron]

Shorting is if you think prices are going to go down: you sell a bunch of shares you don't actually own at a high price, in the hope that by the time it comes to settle up, you can buy them at a much cheaper price, and pocket the difference. I've never managed to work out if you have to borrow them off someone somehow, or if you can just sell stuff you haven't bought yet. I think there might be a legal distinction here.

E.G. (I think - anyone who actually knows for certain how this works please chip in) - Phorm shares are at 2200p. You think that by the end of the day they'll be at 1500p, so you agree a deal to sell, say 10,000 shares to someone for 2200 and arrange to settle up at 5pm. At, say, 4.50pm, they've gone down to 1600, so you buy 10,000 at 1600 and pass them on to the person who's given you 2200 for them when that purchase falls due. This then gets you a nice little profit of £60,000.

Of course, if the share price rises between the time you make the deal and the time you have to settle up, then you've lost out: in the example above, if the shares go up to 2500 by 4.50pm, you've lost £30,000.

It's a weird way of doing things - it was illegal here at one point, although I'm not sure if it still is. I'm guessing it's not.