What it is
To take a short position, an investor borrows shares from a broker and immediately sells them on the open market. The goal is to buy those same shares back at a lower price in the future, return them to the lender, and profit from the price difference. This strategy is highly risky because theoretical losses are unlimited if the asset's price rises indefinitely, unlike a long position where losses are capped at the initial investment.
Short positions are often discussed in the context of bearish market sentiment, speculative trading, or as a hedging strategy. News might cover "short squeezes" where rising prices force short sellers to buy back shares, further accelerating the price increase. Understanding short selling is vital for comprehending market dynamics during downturns, the mechanics of meme stocks, and the strategies employed by hedge funds.
Why it matters
Short positions allow you to profit from declining asset prices but carry unlimited risk if prices rise. It's a high-risk, advanced strategy.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice