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How does short selling work?

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Quick answer

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.

Step by step

  1. It's a bet that a price will fall.
  2. You borrow and sell shares, then aim to rebuy cheaper.
  3. Profit is the price difference, minus borrowing costs.
  4. Losses are potentially unlimited if the price rises.

People also ask

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.