Trading
Short Selling
Borrowing shares to sell them with the expectation of buying them back later at a lower price, profiting from a decline.
Example
Borrowing 100 shares of a $50 stock and selling them, then buying them back later at $40 to return to the lender, nets a $1,000 profit before fees and borrowing costs.
Common Misconception
Short selling has theoretically unlimited downside risk — unlike buying a stock, where the most you can lose is your initial investment, a short position's losses grow without a ceiling as the price keeps rising.
Why It Matters
That uncapped-risk profile is why short selling is generally considered an advanced strategy best suited to experienced traders rather than a typical part of a long-term investing plan.