What does short selling involve?

Short selling involves selling borrowed securities with the expectation that their prices will decline. In this practice, an investor borrows shares from a brokerage and sells them on the open market at the current price. The hope is that the price of the shares will decrease, allowing the investor to buy them back later at a lower price. After repurchasing the shares, they return the borrowed securities to the lender, pocketing the difference between the selling price and the repurchase price as profit.

This technique is often used by investors who believe that a particular stock is overvalued and will experience a price drop. It is inherently riskier than traditional investing because if the price of the borrowed stock rises instead of falls, the investor faces potentially unlimited losses, as there is no ceiling on how high a stock's price can rise. Thus, short selling is a strategy employed by investors seeking to profit from a decline in a security's value.