Glossary · Orders & trading · Beginner-friendly
Short selling
In plain English
Short selling is a bet that a price will fall: you borrow shares, sell them, and hope to buy them back cheaper later. Losses can grow if the price rises instead.
Everyday analogy: Borrowing a rare book, selling it, hoping the price drops before you must replace it.
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Why it matters
Shorting flips the risk profile. Losses can expand without a fixed ceiling, so risk limits matter more than on a long.
A bit more detail (optional)
Mechanics
Borrow shares, sell them, later buy them back to return to the lender. Profit if price falls; lose if it rises.
Asymmetric risk
A long’s loss is capped at 100% without leverage. A short’s loss can grow without a fixed ceiling as price rises.
Simple examples
Squeeze
A heavily shorted name gaps up. Shorts buy to cover, fueling more upside - a feedback loop that can overwhelm a long-term bearish thesis.
Correct thesis, painful path
A weak business eventually falls - but a squeeze forces covers first. Timing and risk control decide survival.
Easy mistakes to avoid
- Shorting without a hard cover level
- Ignoring borrow fees that eat the thesis
- Sizing shorts like long swing trades
Remember: Shorting needs stricter risk limits because losses can run farther than a long.