Short Sale

A short sale is a way of betting that a stock's price will fall, by selling shares you don't own and buying them back later at a lower price. To do it, a trader borrows shares from their broker, sells them on the open market at the current price, and receives the cash from that sale. Later, they buy the same number of shares back — ideally at a lower price — and return them to the broker, keeping the difference as profit.

The mechanics matter: because you're selling something you borrowed, closing the position means "buying to cover," not just "selling." If the stock rises instead of falls, you still have to buy it back to return the borrowed shares, and you buy back at a higher price than you sold — a loss. Unlike a normal ("long") trade where the most you can lose is what you paid, a short sale has no hard ceiling on the loss, because a stock's price can in theory keep climbing indefinitely.

Shorting requires a margin account, and the broker must actually be able to locate and borrow shares to lend you — if no shares are available to borrow, the short sale can't be opened at all, which is a real constraint on hard-to-borrow or heavily shorted stocks. Brokers also charge a borrowing fee, which can be small or, for popular short targets, surprisingly large, eating into any profit.

A common point of confusion is mixing up "short sale" with "selling" a long position you already own — the latter just closes out a normal position and carries none of the borrowing mechanics or unlimited-loss exposure described above.