First, read Larry Mudd’s link about short selling. It’s basically normal trading done in reverse: instead of buy low, sell high, it’s sell high, buy low. It sounds strange at first, but it works. It’s done when you expect prices to drop instead of rise.
The Duke’s fake report leads them to believe that the price of orange juice will go up after the Secretary of Agriculture gives his announcement, so they instruct their man to buy as many shares as he can no matter what.
Ackroyd & Murphy, having seen the real report, know the price will actually go down after the announcement, so they begin short selling, which is selling shares they don’t have yet, with an obligation to buy them back later at a (hopefully) lower price.
When the other brokers see the Duke guy buying like crazy, they assume the Dukes have inside information and they begin a buying frenzy as well. A&M, meanwhile, are short-selling shares to everyone who wants to buy. This means that as the price of OJ goes up, A&M are raking in lots of cash, but are also racking up a potential debt (buying back the shares they short-sold) that will be impossible to pay off if the price of OJ stays high.
When the Sec’y of Agriculture starts his speech and trading pauses, the price of OJ is sky-high, the Dukes hold a huge number of shares worth millions, and A&M hold a huge number of ‘negative’ shares, plus a lot of cash (on paper, anyway, no actual cash changes hands on the trading floor). If trading were to end at this point, the Dukes would be rich (well, richer) and A&M would be absolutely ruined.
The Sec’y gives his announcement, revealing that the orange harvest was good, and there will be no shortage of orange juice. This means that the current price is vastly over-inflated and everyone begins frantically selling their shares. Now A&M begin phase 2.
They begin buying everyone else’s shares, cancelling out the obligations they incurred from their earlier short-selling. Because they are (presumably) buying back shares at a lower price than they sold them for earlier, they turn an overall profit.
The Duke trader, on the other hand, is in a panic because his bosses haven’t given him new orders to stop buying. He freezes up, does nothing, and finishes the trading session still holding all the shares he bought at the over-inflated price.
When trading ends, the price of OJ is much lower than it was earlier in the day, and A&M have made an enormous profit. The Dukes, however, are left holding a huge number of purchase orders that are now almost worthless. They’ve lost a huge amount of money.
As for the bankruptcy: after the end of trading, the head of the exchange then announces a “margin call”. When you buy shares on margin, you’re borrowing money in order to buy more shares than you have available cash for. SEC rules (I believe) state that the amount you owe must be no more than a certain percentage of your total invested assets. If, because of a drop in stock prices, the value of your invested assets becomes too low, the exchange will announce a margin call, insisting that you cough up the dough to bring things back into balance, and that you do it now. In this case, the Dukes borrowed everything they could, thinking they were making a sure bet. When the OJ price collapsed, the amount they had to pay back to cover their margin debts was more than had, and they were bankrupted. Had they done all their trading in cash, not borrowing anything, they still would have lost most of the money they invested, but that would have been all that they lost. They’d still have their mansion, their trading firm, and their seats on the exchange.