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What is short selling?
Short selling is selling an asset you do not own, usually borrowed, hoping to buy it back later at a lower price. If the price falls, the short seller keeps the difference; if it rises, they lose, and there is no ceiling on how high a price can go.
What it means for you
A short position's possible loss is unlimited, because a price can keep rising. You pay interest or fees on what you borrow for as long as the position is open, and a sharp rise can bring a margin call or a forced buy-back at the worst moment.
A common mistake: “Shorting is just buying in reverse, so the most I can lose is what I put in.”
In fact: A buyer's loss stops when the price hits zero, but a short seller's loss grows as the price rises, and a price has no upper limit. The SEC notes shorting leaves an investor open to unlimited losses.
How it works
Typically the broker lends the asset, from its own inventory, another customer's margin account or another lender, and the short seller sells it at once. To close, they buy it back on the open market and return it. Shorting needs a margin account, interest is charged on the loan, and if a borrowed stock pays a dividend the short seller must pay it to the lender. A squeeze happens when scarce supply forces shorts to cover by buying at higher prices. In futures, going short simply means selling a contract.
An example
Say you borrow 1 coin and sell it for $60. If the price drops to $40, you buy one back, return it and keep $20, less fees and interest. If it rises to $80 instead, buying it back costs $20 more than you received.
Sources: SEC Investor Bulletin: An Introduction to Short Sales, CFTC Glossary, FINRA: Know What Triggers a Margin Call · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.