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 portfol...
