What is the practice of short selling in investments?

Short selling is an investment strategy that involves selling borrowed securities with the expectation that the price of those securities will decline. Investors who engage in short selling believe that they can purchase the securities back at a lower price in the future, thereby profiting from the difference.

In this practice, an investor borrows shares of a stock from a broker and sells them on the open market. If the stock price does indeed fall, the investor can buy the same number of shares back at the lower price and return them to the broker, keeping the difference as profit. This strategy carries significant risk, as the potential for loss is theoretically unlimited if the stock price increases instead of decreases.

This process distinguishes short selling from more traditional investment practices, such as bulk buying, holding for long-term gains, or investing in high-dividend stocks, which focus on acquiring and holding assets in anticipation of appreciation or income generation rather than betting on a decline in price.