💡 Most investors know how to make money when stocks rise… but did you know you can also profit when stocks fall?

That’s called short selling (or “shorting”). It’s a strategy used by professionals to bet against a stock. But it comes with higher risks than simply buying.

🔹 Regular Buying (Going Long)

  • You buy shares at today’s price.
  • Later, you sell them hoping for a higher price.
  • Profit if price ↑, loss if price ↓.
  • Your risk is limited — the most you can lose is your investment.

🔹 Short Selling (Going Short)

  • You borrow shares from your broker and sell them.
  • Later, you must buy back the shares and return them.
  • Profit if price ↓, loss if price ↑.
  • Your risk is unlimited — a stock can keep rising forever.

🔹 Example: IBM Shares

Imagine trading 500 IBM shares:

  • If you buy at $120 and later sell at $100, you lose $9,500.
  • If you short at $120 and later buy back at $100, you gain $9,500.

📊 (See table below for the cash flow comparison 👇).

🔹 Extra Things to Know

  • Dividends: If the stock pays a dividend while you’re short, you must pay it to the lender.
  • Margin: Shorting requires a margin account. If the stock rises, your broker may demand more money (margin call).
  • Forced Close: If your broker can’t borrow shares anymore, they can close your position immediately.
  • Regulations: Rules exist to limit short selling, especially when markets are volatile.

Source: Options, Futures & Other Derivatives, John C. Hull