Glossary
Definition
Short Selling
Borrowing and selling shares with the expectation of buying them back at a lower price.
Short selling involves borrowing shares, selling them at the current price, and hoping to buy them back later at a lower price — pocketing the difference. Short sellers profit from declining stock prices. Short selling is inherently risky because there is theoretically unlimited downside (a stock can rise indefinitely).
Frequently Asked Questions
What is a short squeeze?
A short squeeze occurs when a heavily shorted stock rises sharply in price, forcing short sellers to buy back shares to limit losses, which further drives up the price. GameStop in January 2021 is the most well-known recent example.