Short selling

Short selling is a strategy that profits when a stock's price falls rather than rises. An investor borrows shares, sells them immediately at the current price, and later buys them back to return to the lender, keeping the difference if the price dropped in between. A short seller is someone taking this position, betting against a stock rather than for it.

The risk is structurally different from owning a stock outright. A regular position can only lose what was paid for it, the price floor is zero. A short position has no equivalent ceiling, if the stock rises instead of falls, the loss keeps growing the higher it goes, which is why short selling is generally left to professional investors rather than beginners.

Short sellers sometimes publish detailed research reports laying out why they believe a stock is overvalued or a company is engaged in some kind of misconduct. These reports can move a stock sharply in the short term, but the claims still need to be verified independently, a short seller has a direct financial incentive to make the picture look as bad as possible, just as a company has an incentive to make it look as good as possible.