Back to Money Strategies
directional

Short Selling

"Weaponizes crowd optimism against itself"

Selling borrowed assets with the obligation to buy them back later, profiting when the price falls.

How It Works

  1. 1

    Identify overvalued asset or fraud

  2. 2

    Borrow shares from a broker/custodian

  3. 3

    Sell shares immediately into the market

  4. 4

    Wait for price collapse

  5. 5

    Buy back ('cover') at lower price to return shares

Key Mechanics

Asymmetric risk: max gain is 100%, max loss is infinite

Cost of carry: must pay interest on borrowed shares

Squeeze risk: forced buy-ins if price spikes

Regulatory constraints: up-tick rules, ban on naked shorting

Regulatory Context

Heavily regulated. 'Naked' shorting (selling without borrowing) is illegal. Disclosure rules vary by jurisdiction.