1 Answer

In the last decade, shorting a stock has become popular.  The term "shorting" denotes betting on a stock that you hope it would go down in price, unlike going long the stock when most people buy stocks hoping it'd go up in price.

When you short a stock, say RIMM or Research in Motion, the maker of Blackberry, you are betting that the stock will go down in value at some future point.  Unlike stock option purchase, shorting a stock does not have an expiration date but has to be transacted in a margin account.

When you short RIMM, you essentially ask that you "sell short" the stock by "borrowing" stock from the brokerage house such as Merrill Lynch.  Since you've "sold short", the only thing left to do is to "buy" the stock to complete the entire trade.   If the price sold is higher than the eventual buy, you've realized a profit.  If the short sell price is lower than the buy price at the end, you've lost money.  The reverse is true with the long purchase of stocks that most people do.

Finally, you "buy to cover" means that you close out the trade by buying, and in so doing, you've covered the short position.

Did I confuse you more now?