যেগুলো তোমাকে সফল হতে দেয় না|| Six Fears that can ruin your life||Motiva...

 Short selling is a fairly simple concept—an investor borrows a stock, sells the stock, and then buys the stock back to return it to the lender.

Example of a Short Sale

For example, if an investor thinks that Tesla (TSLA) stock is overvalued at $625 per share, and is going to drop in price, the investor may "borrow" 10 shares of TSLA from their broker, who then sells it for the current market price of $625. If the stock goes down to $500, the investor could buy the 10 shares back at this price, return the shares to their broker, and net a profit of $1,250 ($6,250 - $5,000). However, if the TSLA price rises to $700, the investor would lose $750 ($6,250 - $7,000).

Why Do Investors Go Short?

Short selling can be used for speculation or hedging. Speculators use short selling to capitalize on a potential decline in a specific security or across the market as a whole. Hedgers use the strategy to protect gains or mitigate losses in a security or portfolio.

Notably, institutional investors and savvy individuals frequently engage in short-selling strategies simultaneously for both speculation and hedging. Hedge funds are among the most active short-sellers and often use short positions in select stocks or sectors to hedge their long positions in other stocks.

While short selling does present investors with an opportunity to make profits in a declining or neutral market, it should only be attempted by sophisticated investors and advanced traders due to its risk of infinite losses.

When Does Short Selling Make Sense?

Short selling is not a strategy used by many investors largely because the expectation is that stocks will rise in value. The stock market, in the long run, tends to go up although it certainly has its periods where stocks go down.

Particularly for investors who are looking at the long horizon, buying stocks is less risky than short-selling the market. Short selling does make sense, however, if an investor is sure that a stock is likely to drop in the short term. For example, if a company is experiencing difficulties and could miss debt repayments.