What is Short Selling In Stock Market and What are its Pros, Cons?
Short selling is a trading strategy where an investor borrows shares of a stock from a broker and sells them on the open market with the expectation that the stock price will decrease in the future.
The investor sells the borrowed shares, hoping to buy them back at a lower price to return to the broker. The difference between the selling price and the buying price is the profit or loss.
Short selling is the opposite of buying a stock, which is known as going long. When an investor goes long on a stock, they buy shares with the expectation that the price will increase.
Pros:
Short selling can be a profitable strategy if done correctly. It allows investors to profit from falling stock prices and can be used to hedge against long positions in a portfolio.
Cons:
Short selling is a high-risk strategy that can lead to unlimited losses if the stock price rises instead of falls. It can also be subject to restrictions, such as short-sale bans, which limit an investor's ability to execute the strategy.
Short selling requires strict risk management to limit losses. Stop-loss orders and position sizing can help manage the risk associated with short selling.
A short squeeze occurs when the price of a stock increases rapidly, causing short sellers to buy back shares to limit their losses. This can lead to a rapid increase in demand and further price increases.