What is Short Selling?

**Short selling** is a trading strategy where an investor borrows shares of a stock and sells them, hoping the price will fall. The goal is to buy back the shares later at a lower price, return them to the lender, and pocket the difference as profit. Here’s how it works: The investor borrows shares from a broker, sells them at the current market price, and waits for the price to drop. If the price does drop, the investor can then buy back the shares at the lower price, return them to the lender, and make a profit. However, if the price rises instead of falling, the investor faces potentially unlimited losses, as they will need to buy the shares back at a higher price. Short selling is considered risky because, unlike buying stocks, where the loss is limited to the amount invested, there is no limit to how high a stock’s price can rise, leading to potentially large losses. It's often used by experienced investors who believe a stock is overvalued or will decline in value.