What is short selling?

Short selling is a trading strategy used to profit from a decline in an asset's price. A trader borrows shares of a stock they do not own from a broker and sells those shares at the current market price. The goal is to buy the shares back later at a lower price, return them to the lender, and keep the difference as profit. For example, if a trader borrows 100 shares priced at $50 each, they receive $5,000. If the stock price drops to $40, the trader spends $4,000 to buy back the 100 shares. After returning the borrowed shares, the trader realizes a $1,000 profit, minus any borrowing fees or commissions. Short selling carries significant risk. If the stock price rises instead of falling, the trader must still buy back the shares to close the position. Because there is no theoretical limit to how high a stock price can climb, potential losses are infinite. This scenario is known as a short squeeze, where rising prices force short sellers to buy back shares, further driving up the price. Trading involves substantial risk of loss and is not suitable for every investor. Always conduct thorough research before executing short positions.