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What is short selling?

In one line: Short selling is selling shares you've borrowed, hoping to buy them back later at a lower price and return them. It goes the other way from buying.

Trading glossary · Updated 2026-10-21

How it works, step by step

1. Your broker lends you shares from its pool or another client's account.

1. You sell them at today's price.

1. Later you buy the same number of shares back.

1. The shares go back to the lender.

If you bought back cheaper than you sold, you keep the difference. If higher, you pay it. You need a Margin account to do this.

A simple example

You short 100 shares at $40.

• Price falls to $36. You buy back for $3,600. You sold for $4,000. That's a $400 gain, minus costs.
• Price rises to $45. You buy back for $4,500. That's a $500 loss, plus costs.

A math example, not a promise. Either can happen.

The costs most people forget

• Borrow fee: you pay to borrow the shares. Popular shorts can be expensive.
• Dividends: if the stock pays a Dividend while you're short, you owe it to the lender.
• Recall: the lender can ask for the shares back, forcing you out.

Why it matters

In forex, futures and crypto, selling first is just as easy as buying first. In stocks it's a loan with extra rules. Knowing both directions is part of reading any chart. Our long and short page covers the basics.

A common mistake

Shorting without a stop. When you buy a $40 stock, the most it can fall is to $0. When you short it, there's no ceiling on how high it can go. Losses on a short have no fixed limit.

Fast rises in heavily shorted stocks can turn into a Short squeeze. Always set your Stop loss from the chart, and size from it with the position size calculator.

Questions