Glossary entry
Short selling shares generally involves borrowing securities, selling them, and later buying securities to return to the lender. The seller seeks to benefit if the repurchase price is lower, but borrowing fees and other obligations affect the result. This is a transaction process, whereas a short position describes the resulting exposure, which can also be created with derivatives.
Illustrative example
A trader borrows and sells 10 shares at 50, then buys them back at 45. The gross difference is 50 before borrowing costs and other charges.
What to consider
A share price can rise without a fixed upper limit. Borrow recalls, dividend compensation, and margin demands can increase losses or force closure.
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