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Short Selling

What does Short Selling mean?

Short selling a stock or derivative means selling a stock or derivative that is not owned by the seller. The investor or trader short sells with the expectation that the price will fall and he will then repurchase the same at a lower price.

Futures Knowledge Explains Short Selling

Selling short is a strategy to benefit from downward movements in the price. For example an investor borrows stock from someone with the promise to give it back on a specific date, and sells the stock immediately. When price goes down, he buys back from the market at lower price and returns the borrowed stock. This strategy carries high risk and high reward. The outcome depends on market behaviour.

For example in 1992, George Soros, the leading hedge fund manager had earned $1.1 billion overnight by short selling the British pound would significantly depreciate.

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