Shorting, or short selling, involves selling securities that the trader doesn’t own, typically by borrowing them from a broker, with the intention of buying them back later at lower prices. Short selling enables traders to profit from declining prices and provides market liquidity during downturns. Short positions carry unlimited loss potential as prices can theoretically rise indefinitely.

Short selling requires margin accounts and involves borrowing costs, dividend payments, and potential recall risks. Regulatory restrictions may limit short selling during market stress periods. Understanding short selling mechanics helps implement bearish strategies and assess market sentiment through short interest data.

Real-world example: A trader shorts 1,000 shares of Tesla at $300, borrowing the shares and selling them immediately, profiting $50,000 if Tesla falls to $250 but facing unlimited losses if Tesla rises significantly above $300.