Short selling is a trading strategy where an investor borrows shares of a stock and sells them on the market with the intention of buying them back later at a lower price.

The goal is to profit from a decline in the stock's price.

Here’s how it works:

1. Borrowing the Stock: The investor borrows shares from a broker to sell in the open market.

2. Selling the Stock: The investor sells the borrowed shares at the current market price.

3. Buying Back the Stock: If the stock price falls, the investor buys the shares back at the lower price.

4. Returning the Stock: The investor returns the borrowed shares to the broker and pockets the difference as profit.

If the stock price rises instead of falling, the short seller would face a loss because they would have to buy back the stock at a higher price than what they sold it for.

Since stock prices can theoretically rise indefinitely, short selling involves unlimited risk.


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