Trading 101
What Is Short Selling? How Shorting a Stock Works
How short selling works step by step, why losses can be unlimited, and what a short squeeze is.
Beginner investing lessons and fake-money practice from the maker of Quoliv.
Quick answer
Short selling is betting that a stock's price will fall. You borrow shares, sell them now, and hope to buy them back cheaper later to return them. If the price drops, you keep the difference. If it rises, you lose money, and because a price can keep rising, the possible loss has no ceiling.
What you’ll learn
- Shorting means selling borrowed shares and buying them back later.
- You profit if the price falls and lose if it rises.
- Losses are theoretically unlimited because prices can rise without limit.
- Shorting requires a margin account and usually costs borrowing fees.
- A short squeeze can force short sellers to buy back at rising prices.
This explanation is part of our Day Trading lessons path, where you can explore the idea in short lessons and quizzes.
Step by step
- Borrow 10 shares from your broker and sell them at $50: you receive $500.
- If the price falls to $30, buy 10 shares back for $300 and return them. You keep $200, minus fees.
- If the price rises to $80, buying back costs $800. You lose $300, plus fees.
Buying vs shorting
| Buying a stock | Shorting a stock | |
|---|---|---|
| You profit when | Price rises | Price falls |
| Biggest possible loss | What you paid | No fixed limit |
| Account needed | Cash account is fine | Margin account |
| Ongoing costs | Usually none | Borrow fees and margin interest |
What is a short squeeze?
When a heavily shorted stock starts rising, short sellers may rush to buy shares back to limit their losses. That buying pushes the price even higher, forcing more short sellers to buy. The result can be a very fast, very large price spike.
Shorting is an advanced strategy. Most beginners have no need for it.
Sources and methodology
This guide was written for education using the primary sources below. It does not evaluate your finances or recommend an investment. Read our editorial policy.