What does Short Selling mean?

Short selling means borrowing shares to sell now, hoping to buy them back later at a lower price and pocket the difference — it profits when a stock falls.

Short selling flips the usual order: you borrow shares and sell them first, hoping to buy them back later at a lower price and return them, pocketing the difference. It profits when a stock falls, but losses are theoretically unlimited since a stock's price can keep rising.

Short Selling example

You borrow and sell 100 shares at $30, receiving $3,000. If the price falls to $20 you buy them back for $2,000 and keep $1,000, minus borrowing costs. If it rises to $50, buying back costs $5,000 — a $2,000 loss.

Common beginner mistake

Forgetting the risk is unlimited. A stock can only fall to zero, but there's no ceiling on how high it can rise against a short.