Short Selling

Short selling is a strategy where an investor sells a security that they have borrowed, aiming to buy it back at a lower price in the future. The goal is to profit from a decrease in the security’s price. Short sellers borrow the asset from a broker, sell it on the open market, and later repurchase it at a lower price before returning it to the lender. While short selling can be profitable in declining markets, it is highly risky since the potential for loss is theoretically unlimited if prices rise unexpectedly.

Example

An investor borrows 200 shares of a stock and sells them at $30 per share. If the stock falls to $25, they buy the shares back and return them to the lender, profiting from the price difference.