Short Selling

Short selling is the practice of selling a security that you do not own. This is done with the expectation that the price of the security will fall, so that you can buy it back at a lower price and return it to the lender.

Short selling is a risky investment strategy, because it is possible to lose more money than you invested. However, it can also be a profitable strategy if the price of the security does fall.

There are two main types of short selling:

• Naked short selling: This is when you sell a security that you do not own. This is considered to be a risky practice, because it is possible to lose more money than you invested.
• Covered short selling: This is when you sell a security that you have borrowed from a broker. This is considered to be a less risky practice, because you have the security to cover your position.

Short selling can be used for a variety of purposes, including:

• Hedging: This is when you short a security to protect yourself from a decline in its price.
• Speculation: This is when you short a security in the hope of making a profit.
• Market making: This is when you short a security to provide liquidity to the market.

Short selling is a complex investment strategy that should only be used by experienced investors. If you are considering short selling, it is important to understand the risks involved.