What is Short Selling?

Short selling involves borrowing shares (or another asset) from a broker and immediately selling them on the market. The short seller aims to later repurchase the same asset at a lower price, return the borrowed shares to the broker, and pocket the difference as profit. This strategy is a bet that the asset's price will fall.

It is a high-risk strategy because potential losses are theoretically unlimited. If the asset's price rises instead of falls, the short seller must buy it back at a higher price to cover the position, incurring a loss. Short selling is regulated on major exchanges like the NYSE and Nasdaq, with rules like the 'uptick rule' to prevent manipulation during steep declines.