What is short selling, and how does it work in stock trading?

Short selling is a strategy where investors bet that a stock's price will decline. To short a stock, an investor borrows shares from a broker and sells them at the current market price. The goal is to later buy the same number of shares at a lower price, return them to the lender, and pocket the difference as profit. If the stock price falls, the short seller profits; if it rises, the investor faces a loss. Short selling carries significant risk because stock prices can increase indefinitely, leading to potentially unlimited losses. It is typically used by experienced traders and institutional investors to profit from overvaluations or hedge existing positions. Financial authorities regulate short selling to prevent market manipulation and excessive speculation, ensuring a fair trading environment.