What is Short Selling?

Short selling is profiting from a decline in the stock price by using borrowed money from your brokerage firm.

You basically sell a stock that you don't own(broker lends it to you). If a stock falls down you buy it back and get a profit.

To be eligible for short selling you need to open a margin account with your brokerage firm. Put options and short selling both make money when the stock falls. However, with a put option you put the money upfront and your downside is limited to how much money you put in whereas for short selling you borrow it and your losses are unlimited(since there is no limit to how much the stock might rise instead). Also, if you have a short-selling position, the broker can also, at any time, ask you to cover your position if the broker wants the lended stock back. If that happens, then you'll have to buy the shares with your own money or borrow new shares.




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