Finance
How does short selling work?
Short selling is betting that a stock's price will fall. You borrow shares and sell them now, hoping to buy them back later at a lower price, return them, and pocket the difference. If the price rises instead, losses can be large.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how short selling works.
Step by step
- 1It's a bet that a price will fall.
- 2You borrow and sell shares, then aim to rebuy cheaper.
- 3Profit is the price difference, minus borrowing costs.
- 4Losses are potentially unlimited if the price rises.
Frequently asked questions
- How does short selling work?
- You borrow shares, sell them, and hope to buy them back cheaper later to return them and keep the difference.
- Why is short selling risky?
- A stock can rise without limit, so losses on a short position are theoretically unlimited.
- What is a short squeeze?
- When a rising price forces short sellers to buy back fast, pushing the price even higher.