How markets work
Short selling
Also called Shorting
Borrowing a security, selling it, and hoping to buy it back cheaper before returning it.
How it works
A short seller profits when the price falls. They borrow shares from a holder, sell them into the market, and must eventually buy them back — the "cover" — to return them, paying a borrow fee throughout.
Shorting is how negative opinions get expressed in prices, and short sellers have exposed a long list of frauds. It is also structurally dangerous, because the potential loss has no upper bound.
Where it misleads people
The maths is brutally asymmetric. A long position can fall 100% at worst; a short can lose many multiples of the amount committed, because a share price has no ceiling. A short squeeze can force that loss on you at speed.
Related terms
- Short squeezeA sharp price rise caused by short sellers being forced to buy back at once.
- MarginBorrowing from your broker to buy more than your cash allows, using your portfolio as collateral.
- Securities lendingLending out shares you own, for a fee, usually to someone who wants to sell them short.
- Short interestThe number of a company’s shares currently sold short, often shown as a percentage of the free float.
- Limited liabilityThe rule that a shareholder can lose what they invested and no more, whatever the company owes.
More in How markets work
All 33 How markets work terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.