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Short selling

Selling borrowed shares in the hope of buying them back later at a lower price.

To short, your broker borrows shares from another account and sells them for you. You owe those shares back. If the price falls you buy them back cheaper and keep the difference; if it rises you buy them back at a loss.

Shorting has costs and risks that buying does not: borrow fees, the possibility the lender recalls the shares, and theoretically unlimited loss because a stock can rise without bound. A crowded short is what fuels a short-squeeze.

Example: you short 100 shares at $50. The stock drops to $40 and you cover: profit $1,000 minus borrow fees. If it instead rises to $70, you are down $2,000 and the loss keeps growing.

Related: short-interest, short-squeeze, margin, bear

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Bollinger bands squeezing and then expandingA price line between three curves: an average in the middle and a band above and below it that pinch together in the centre of the chart and then spread apart as the price runs higher.PRICE WITH BOLLINGER BANDS (20, 2)SQUEEZEupper bandpricemiddle band20-day averagelower bandbands widen asvolatility risesIllustrative prices. The bands sit two standard deviations from the average.
Bollinger bands: squeeze and expansion. The middle line is a 20-day average and the outer bands sit a set number of standard deviations away, so they measure how far price has recently been straying. When moves are small the bands pinch together; when moves grow they spread apart.

Educational only, not advice. Spotted an error? Post in Site Feedback.