“Going Short” is a fundamental concept in stock trading that beginners must understand. It’s a strategy used by investors when they predict that a particular stock’s price will decrease in the future. This process involves borrowing shares from a broker and selling them immediately at the current price.
Later, if their prediction is correct and the stock price does fall, the investor will buy back the stock (known as covering the short), often at a lower price, and return the borrowed shares to the broker, earning a profit from the difference. If the stock price rises, however, the investor will have to buy the shares back at a higher price and take a loss.
It’s essential to know that this process can be risky as potential losses are theoretically unlimited; the price of a shorted stock could continue rising indefinitely.
