The basics
Short selling (going short)
Going short means betting on a falling asset: you sell it borrowed, then buy it back cheaper later.
Going short means betting on a falling asset: you sell it borrowed, then buy it back cheaper later.
Short selling lets you profit when a price falls. In practice, you borrow the asset from your broker, sell it immediately at the current price, then buy it back later to return it. If the price dropped in between, you pocket the difference.
It is riskier than a long position: if the price rises instead of falling, you must buy back higher, and because a price can rise without limit, the potential loss has no fixed ceiling. That is why strict risk management is essential when shorting.
You short a stock at $50. It falls to $40 and you buy back: you make $10 per share. But if it rises to $65, you must buy back at a loss of $15 per share.
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