Quick Definition

Short selling is a trading strategy where an investor borrows shares of a stock or other asset that they believe will decrease in value, sells them at the current market price, and plans to buy them back later at a lower price to return to the lender.

Examples

• 1An investor anticipates that Company X's stock, currently priced at $100, will decline due to poor earnings reports. They borrow and sell 100 shares, then buy them back at $80, profiting from the difference.
• 2During a market downturn, a trader shorts a sector ETF expecting further declines. They profit by covering their short position after the ETF's value drops.
• 3A hedge fund engages in short selling as part of a larger strategy to hedge against potential losses in their long positions in related securities.

Tags