Shorting is a trading strategy used when someone believes the price of a stock or asset will decrease. It involves borrowing shares of a stock from a broker and selling them on the market at the current price. The goal is to buy those same shares back later at a lower price, return them to the broker, and keep the difference as profit.
For example, if a trader shorts a stock at $100 and the price drops to $70, they can buy it back at that lower price, return it, and make a $30 profit per share (minus any fees or interest).
However, if the price rises instead of falls, the trader must still buy the stock to return it, possibly at a much higher price—leading to a loss. Since there's no limit to how high a stock price can go, shorting carries potentially unlimited risk.
In essence, shorting is a bet that something will go down in value. It can be profitable, but it's also risky.
