Short selling occurs when an investor borrows a security, sells it on the open market, and expects to buy it back later for less money.
 | | Term of the Day | Words to Know | | |  | | Short Selling | Short selling is an investment or trading strategy that speculates on the decline in a stock or other securities price. It is an advanced strategy that should only be undertaken by experienced traders and investors.
Traders may use short selling as speculation, and investors or portfolio managers may use it as a hedge against the downside risk of a long position in the same security or a related one. Speculation carries the possibility of substantial risk and is an advanced trading method. Hedging is a more common transaction involving placing an offsetting position to reduce risk exposure.
In short selling, a position is opened by borrowing shares of a stock or other asset that the investor believes will decrease in value by a set future date—the expiration date. The investor then sells these borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost. The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity. | | Read More » | | Related to "Short Selling" | | | | SPONSORED BY INVESCO | | The Complete Guide to ETFs | | ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. | | Learn More » | | | Speculation | | Speculation refers to the act of conducting a financial transaction that has substantial risk of losing value but also holds the expectation of a significant gain. | | Read More » | | | Hedge | | A hedge is an investment to reduce the risk of adverse price movements in an asset. | | Read More » | | | Downside Risk | | Downside risk is an estimation of a security's potential to suffer a decline in value if the market conditions change, or the amount of loss that could be sustained as a result of the decline. | | Read More » | | | Margin Account | | A margin account is a brokerage account in which the broker lends the customer cash to purchase assets. When trading on margin, gains and losses are magnified. | | Read More » | | | | | | CONNECT WITH INVESTOPEDIA | | | | | | | |
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