Short Selling

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Description of Short Selling. Explanation.


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Definition Short Selling. Description.

Short Selling is to sell commodities, currencies or securities that the seller does not own, typically in the speculative expectation that the prices will fall. The seller will then be able to cover the sale by buying the security back at a lower price. The profit would be the difference between the initial selling price and the subsequent purchase price.

This is a high-risk strategy, and related losses (or gains) can be substantial. Compare: Put Option

The act of buying back the shares which were sold short is called Short Covering.

A "Short and Distort" scam involves short selling a stock while smearing a company with false rumors to drive the stock's price down. Short-and-distort tactics work best with smaller companies whose stock prices are more volatile. Untrue or exaggerated negative information (creating artificial selling motivation) is disseminated to allow fraudulent profits to occur. Compare: Whisper Number

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Compare with: Behavioral Finance  |  Investor Sentiment  |  Hedge  |  Hedging  |  Technical Analysis

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