Short selling

In finance, short selling refers to selling something that you do not own. Typically, this refers to stock shares.

The hope is that the the price falls and it is possible to buy back whatever you sold at a lower price to make a profit. This is termed 'covering your position'.

In order to sell something short, you must borrow it from someone else, usually a stockbroker. The lender will charge a fee for this service of course.

It is important to note that buying shares and then selling them (going long) has a very different risk profile from 'selling short'. In the former case, you have limited losses (the price can only go down to zero) but unlimited gains (there is no limit on how high the price can go). When you go short, this is reversed, meaning you can lose more than the original value of the share, with no upper limit. For this reason, short selling is largely used as part of a hedge.