<p>Short selling is a trading strategy where an investor sells shares they do not own, borrowing them from a broker with the expectation that the price will fall.</p>

<h2>How It Works</h2>
<p>The trader contacts a broker to borrow a specific number of shares.</p>
<p>The borrowed shares are sold immediately at the current market price.</p>
<p>If the share price declines, the trader buys back the same number of shares at the lower price.</p>
<p>The repurchased shares are returned to the broker, and the difference between the sale price and the repurchase price (minus fees and interest) constitutes profit.</p>
<p>If the price rises instead, the trader must buy back at a higher cost, resulting in a loss that can theoretically be unlimited.</p>

<h2>Why It Matters</h2>
<p>Short selling adds liquidity to markets by providing additional sellers.</p>
<p>It helps price discovery, allowing overvalued securities to adjust more quickly.</p>
<p>Investors use short positions to hedge long‑only portfolios against market downturns.</p>
<p><strong>Example:</strong> A trader believes company ABC’s stock is overpriced at $50 per share. They borrow 1,000 shares, sell them for $50,000, and later buy them back at $40 per share for $40,000. After returning the shares, the trader profits $10,000 (less borrowing costs).</p>