Short selling, also known as shorting or going short, is a trading strategy in which an investor borrows shares of a stock or other security and sells them, with the expectation that the price will fall. The investor then buys the shares back at a lower price, returns the borrowed shares to the lender and pockets the difference as profit.
Short selling is considered a high-risk strategy, as the potential loss is theoretically unlimited. If the price of the security increases instead of decreasing, the short seller will have to buy back the shares at a higher price, resulting in a loss.
Short selling is often used by hedge funds, professional traders, and other sophisticated investors to profit from a market downturn or to hedge against losses in other investments. In order to short sell a stock, an investor must first borrow the shares from a broker or other lender.
There are some restrictions on short selling in some markets, and it’s important to understand the rules and regulations before engaging in short selling. Additionally, short selling can be affected by market conditions, news events, and other factors.
It’s important to note that short selling is considered a high-risk strategy and not suitable for all investors, as the potential loss is theoretically unlimited and can be greater than the initial investment. It’s important to conduct thorough research, to understand the risks involved and to use caution when engaging in short selling.