Short Selling

Short selling is a trading technique where an investor bets that an asset’s price will drop. To do this, the trader borrows shares or another asset, immediately sells them on the market, and plans to buy them back later at a lower price. If the price does decline, the trader buys the asset back at the lower rate and returns it to the lender, pocketing the difference as profit.

However, if the asset’s price rises instead, the short seller faces losses—potentially very large ones, since there’s theoretically no limit to how high the price can go. In contrast, investors who own an asset directly (a long position) can only lose as much as they invested, because an asset’s price cannot fall below zero. Short selling carries significant risk and is generally suited for experienced traders.