Glossary · Defined term
Short selling
Short selling means borrowing shares and selling them, betting the price will fall so they can be repurchased cheaper.
Last updated Oct 2, 2026
What it means
Short selling is borrowing shares and selling them immediately, betting the price will fall so the shares can be repurchased cheaper later and returned to the lender. The short seller pockets the difference, minus borrowing fees and any dividends owed to the lender while the position is open. It is the mirror image of ordinary investing: profit comes from decline, and losses are theoretically unlimited because a stock's price has no ceiling. If the price surges instead, short sellers may be forced to buy back at steep losses, sometimes all at once in a short squeeze. Brokers require collateral and can close the position if losses grow too large.
An example
For illustration, an investor borrows 100 shares at $50 and sells them for $5,000. If the stock falls to $40, they buy back for $4,000, return the shares, and keep roughly $1,000 minus fees. If the stock instead jumps to $90, buying back costs $9,000, a $4,000 loss, and there is no cap on how high it could go.