The process that allows you to sell without owning the asset is called short selling. Here’s how it works step by step in financial markets (such as stock or cryptocurrency markets).
How does short selling work?
Borrowing:
First, you borrow the asset you want to sell. This doesn’t mean you physically take the asset home, but it’s an electronic agreement with your broker (the trading company you use). The broker, in turn, borrows this asset from one of their clients who owns it.
To borrow, you typically need a margin account. This account allows you to trade with borrowed funds, but it requires you to maintain a minimum amount of money in your account as collateral for the broker.
Selling:
Once you have “borrowed” the asset, you sell it immediately in the market at the current price.
Buying Back:
If the price drops as you expected, you buy back the same amount of the asset from the market, but this time at a lower price.