Short Selling
Profiting when stocks fall — with unlimited upside risk
Definition
Short selling is a trading strategy where an investor borrows shares and immediately sells them, hoping the price will fall so they can buy the shares back at a lower price, return them to the lender, and pocket the difference. Short sellers profit from declining prices. The risk is theoretically unlimited — if the stock price rises instead of falls, losses can exceed the original investment. Brokers charge a borrow fee for shorting shares.
Example
A trader believes Company X is overvalued at $100. They borrow 100 shares and sell them for $10,000. Two weeks later, the stock falls to $70. The trader buys back 100 shares for $7,000, returns them to the lender, and keeps the $3,000 difference (minus borrow fees).
Related Terms
Frequently Asked Question
What is short selling?
Short selling is borrowing and selling shares you don't own, hoping to buy them back cheaper later. Profit comes from the price difference. Risk is unlimited since prices can rise indefinitely.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.