Shorting stock has long been a popular trading technique for speculators, gamblers, arbitrageurs, hedge fund managers, and individual investors willing to take on a potentially substantial risk of capital loss. Shorting stock, also known as short selling, involves the sale of stock that the seller does not own, or shares that the seller has taken on loan from a broker. Short sellers take on these transactions because they believe a stock's price is headed downward, and that if they sell the stock today, they'll be able to buy it back at a lower price at some point in the future. If they accomplish this, they'll make a profit consisting of the difference between their sell and buy prices. Some traders do short selling purely for speculation , while others want to hedge, or protect, their downside risk if they have a long position.
Sheared by the Shorts: How Short Sellers Fleece Investors
How to short stocks | Fidelity
The basic form of short selling is selling stock that you borrow from an owner and do not own yourself. In essence, you deliver borrowed shares. Another form is to sell stock that you do not own and are not borrowing from someone. Here you owe the shorted shares to the buyer but " fail to deliver. Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist.
Jump straight to Webull! Traders who speculate on an upcoming decline often sell stocks short. But you can also use short sales to balance portfolio allocations and manage risk. When you sell stocks short, you borrow the stock from your stockbroker, then sell the borrowed stock in the market and leave an open short position.
Short-sellers - or traders who wager on stock declines - are alive and well as markets soar to new highs in High short interest often implies an outright bearish position on a stock, though it can also reflect simple downside hedging. Here are the stocks with the highest notional short interest, according to S3 Partners.