Short Selling
Selling borrowed securities with the expectation of buying them back at a lower price for profit.
Definition
Short selling is a trading strategy where an investor borrows shares of a stock from a broker and sells them on the open market, planning to buy them back later at a lower price. The profit is the difference between the selling price and the repurchase price, minus borrowing costs. Short selling carries theoretically unlimited risk because a stock's price can rise indefinitely. Short squeezes occur when heavily shorted stocks rise sharply, forcing short sellers to buy back shares at higher prices, further driving up the price. The GameStop short squeeze of 2021 is a famous example. Short interest (the percentage of shares sold short) is a closely watched market indicator.
Related Terms
Margin
The collateral required to open and maintain a leveraged trading position.
TradingLeverage
Using borrowed capital to increase the potential return of an investment.
TradingRisk Management
The process of identifying, assessing, and controlling threats to an investment portfolio.
TradingVolatility
A statistical measure of the dispersion of returns for a given security or market index.