Betting a stock will fall, by borrowing and selling shares you don’t own, then buying them back cheaper.
A short seller borrows shares of a stock, sells them immediately at today's price, then hopes to buy them back later at a lower price to return to the lender, pocketing the difference. It's a bet that a stock will fall rather than rise. The risk is unusual compared to normal investing: since a stock's price can climb without limit, a short position's potential loss is technically unlimited, unlike buying a stock outright, where the most you can lose is what you paid. That asymmetry is why a "short squeeze," short sellers rushing to buy back shares as a price rises against them, can move a stock violently.
Part of the Open Bell Glossary — plain-English explanations of the terms that come up on the show. Browse every term.