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What is a Short Sale in Investing?

Written by Jasir Jawaid

Short selling means investing in a stock in such a manner that you will profit if its price drops. It is the opposite of the traditional long position, which means you'll make money if the stock price rises. The difference between short sellers' buy price and the sell price is their profit. While on paper it may come off as a simple concept, short-selling stocks is a very advanced investment strategy best left to veteran traders and investors like hedge funds.

Once a short position is opened, and if things go awry, you could lose all of your initial investment. Not only that, there's a likelihood you may end up owing your brokerage money because there's no ceiling to the price of the stock; it can continue to rise indefinitely. As a result, unlimited losses can occur. On the flip side, however, your profit cannot exceed 100% because a share price can't fall below zero dollars. In fact, after borrowing costs and margin interest, profits are generally under 100%.

This article was published on JoyWallet and can be read here in full.


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