Short selling means that you expect the price to decrease. Whether that’s a single stock, the entire sector, or anything in between. It’s like betting on the losing horse. Would you bet for that?
Shorting a stock means that an investor buys shares and sells it in the market, planning to buy it back later at a lower price.
You have Stock A, and buy 100 shares for $100 per share. The earnings were better than expected, making for a $110 price per stock. Now you have to buy your shares back at $110 per share, totaling $11,000, and return them to your broker.
Losing Money – you can lose money when a stock price rises. This downside can be unlimited, as stock prices can increase unlimitedly in theory.
Pros: – Opportunity for high profits – Possibility to leverage – As a protection (hedge) against other holdings
Cons: – Unlimited losses – Short squeezes – Pay interest on leverage