Understanding Short Selling

What is Short Selling?

Most people think of investing as buying a stock (or other asset) and making money when its price goes up - but it’s also possible to make a profit when a stock price goes down. This process is called short selling (or shorting).

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Short selling isn’t all peaches and cream. There are opportunities for high returns, but as usual, these come with high risks. The big risk here is that there is no limit to your losses. When you buy a stock, you can only lose the amount that you invested. But when you short, your losses are infinite because there is theoretically no end to how high a stock’s price can rise.

Short selling isn’t for everyone. It requires a lot of time and research, and a desire for high risks and high returns. Short selling is primarily used for speculator looking to make a profit when the market goes down or investing looking to hedge their position.

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