Short selling

Short selliing

Short selling is when an investor borrows a sotck, sells it at the current price, and hopes to buy it back later at a lower price to make a profit. It's a way to bet that a stock's price will go down.

Example:

1. You believe Company X's stock, currently priced at $100, will drop soon.

2. you borrow 1 share of Company X from a broker and sell it for $100.

3. Later, the stock price drops to $70.

4. You buy back the stock at $70 and retrurn it to the broker.

5. Your profit+$100(sold)-$70(bought)=$30.

What if the price goes up?

If the  stock price rises instead of falling, you must buy it back at a higher price, leading to a loss.

For example, if the stock price rises to $120, you must buy it back for $120, losing $20 instead.

Short selling is risky because, unlike regular investing (where your maximum loss is what you invest), your losses can be unlimited if the stock keeps rising.