Short Selling

Market Mechanics

Short selling means borrowing shares you do not own from your broker, selling them, and later buying them back to return; it is done in the expectation that the price will fall.

If the price falls, the difference is your gain; if it rises, it is your loss, and because there is no ceiling on how high a price can go, the potential loss is theoretically unlimited. It requires a margin account, you pay a borrow fee, and any dividends paid while the position is open go to the lender at your expense.

Example

Short at $100 and buy back at $80, and you make $20 per share before costs. If the stock instead rises to $130, buying back costs you $30 per share.

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