What is short selling

Short selling is a trading strategy used in the financial markets where an investor sells borrowed assets, such as stocks or commodities, with the expectation that the price will decline in the future. The investor then buys back the assets at a lower price, returns them to the lender, and pockets the difference as profit. Short selling can be used by investors to profit from a declining market or to hedge against potential losses in their long positions. It is a way for investors to take advantage of falling prices in the market, and it can be a useful tool for speculating on the future performance of a particular asset. However, short selling also carries significant risks. If the price of the asset increases instead of decreases, the investor will incur losses as they are required to buy back the borrowed assets at a higher price. Additionally, there is the potential for unlimited losses in a short selling position, as there is no limit to how much the price of an asset can increase. Regulators closely monitor short selling activity to prevent market manipulation and maintain market stability. Short selling is subject to specific rules and regulations, and it is not suitable for all investors. It requires a high level of expertise and carries a high level of risk, so it is important for investors to thoroughly understand the strategy before using it in their trading activities.