Glossary · from the DESK dictionary
Short Selling
Selling borrowed shares in anticipation of buying them back later at a lower price.
In plain words
A bet on falling prices: sell first, buy back later (hopefully cheaper).
In more detail
Short selling denotes selling borrowed securities in expectation of falling prices, with later repurchase for return. The risk structure is asymmetric: gains are capped at 100 percent, losses theoretically unlimited. Ongoing borrow fees and recall risk add to this if the lender demands the paper back. Economically short sellers serve an important function — they expose mispricings and accounting manipulation and improve price efficiency.
Example
A fund shorts a share at 40. The borrow fee is 18 percent annually because the paper is scarce. After five months the share stands at 34 — the 6 euro gain is halved by 3 euros of borrow cost.
What it means for traders
A key tool for bearish bets and hedging, also central to short-seller research and market scrutiny.
Common pitfalls
Theoretically unlimited loss potential since a stock's price can rise without limit — plus the risk of a short squeeze.
Related terms
Bear Raid · Buy to Cover · Convertible Arbitrage · Fail to Deliver · Global Securities Lending · James Chanos · Jesse Livermore · Liquidity · Long Position · Long/Short Equity · Naked Short Selling · Order Marking · Prime Brokerage · Short Sale Rule (Uptick Rule / Alternative Uptick Rule)
From the DESK dictionary. For information only, not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-10-12.