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Strategies & conditions

Short Selling

Borrowing and selling a stock you don't own, betting the price falls so you can buy it back cheaper later.

Short selling is a way to bet on a falling price. Instead of buying low and selling high, a short seller borrows shares (through a broker) and sells them immediately, aiming to buy the same number of shares back later at a lower price, return the borrowed shares, and keep the difference.

The risk profile is the inverse of a normal long position, and importantly asymmetric: a long position's maximum loss is the amount invested (the price can only fall to zero), while a short position's potential loss is theoretically unlimited, because there's no ceiling on how high a price can rise before the position is closed out.

A short position also typically carries a borrowing cost charged by the broker for as long as the position stays open, and can be forced closed ("called in") if the lender wants the shares back — considerations a simple long position doesn't have.

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