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Betting Against a Stock
Short selling allows you to profit when a stock's price falls. It's a powerful but risky strategy.
How Short Selling Works
Borrow shares from your broker, sell them immediately, then buy them back later (hopefully at a lower price) to return to the lender. Your profit is the difference.
The Mechanics
- Your broker locates shares to borrow
- You pay borrowing fees (varies by stock)
- You're responsible for any dividends paid
- Margin requirements apply
Unique Risks
Unlimited loss potential (stocks can rise infinitely), short squeezes, and borrow recalls. The market's long-term upward bias works against shorts.
When Short Selling Makes Sense
As a hedge against long positions, in clearly overvalued situations, or as part of a long/short strategy. Not for beginners.