What is short selling?

AI Overview Learn more Short selling is a strategy where investors profit from a decline in the price of a security (like a stock) by borrowing shares, selling them, and then buying them back at a lower price to return to the lender. Here's a more detailed explanation: Borrowing and Selling: Investors who believe a stock's price will fall borrow shares from a broker, sell them in the market, and then hope the price drops. Buying Back and Profiting: If the price drops as expected, the investor can buy back the shares at a lower price, return them to the broker, and keep the difference as profit. Potential for Unlimited Losses: Unlike traditional investing where potential losses are limited to the investment amount, short selling has the potential for unlimited losses because the price of a stock can theoretically rise indefinitely. Example: Imagine you borrow 100 shares of a stock at $50 per share, sell them for $5,000, and then the price drops to $40 per share. You can buy back the shares for $4,000, return them, and pocket the $1,000 difference. Risk: If the stock price rises instead of falling, the investor will have to buy back the shares at a higher price, resulting in a loss. Margin Account: Short selling requires a margin account, which allows investors to borrow money or securities from their broker to finance their trades. Short Position: When an investor sells a stock they don't own, they are said to have a "short position" in that stock. Short Selling: How It Works - Investopedia Nov 20, 2024 — Short selling is a strategy where traders profit from a decline in the price of an asset, often a stock. In a short sa... Investopedia

Short Selling: 5 Steps for Shorting a Stock - NerdWallet

Mar 18, 2025 — Short selling is when a trader borrows shares and sells them, hoping the price will fall after so they can buy them ba...

NerdWallet

The Short of It: Answers About Short Selling - Charles Schwab Sep 25, 2024 — Short selling involves the sale of borrowed shares in the hope of profiting from a decline in the stock price. ... To ... Charles Schwab

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