What Is Short Selling?
Short selling is betting that a stock's price will fall. It's the opposite of the traditional "buy low, sell high" approach.
The Mechanics
To short a stock, you borrow shares from your broker and immediately sell them at the current market price. Later, you buy back the same number of shares (hopefully at a lower price) and return them to your broker. Your profit is the difference.
A Simple Example
You borrow 100 shares of XYZ stock trading at $50 and sell them for $5,000. The price drops to $30. You buy back 100 shares for $3,000 and return them. Your profit: $2,000 (minus fees and interest).
Why Short Sell?
Traders short stocks they believe are overvalued or facing trouble. It's also used for hedging—protecting a portfolio from downside risk. Institutional investors use shorts to balance exposure.
- Short selling profits from falling stock prices
- You borrow shares, sell them, then buy them back cheaper
- It's used for speculation and portfolio hedging
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