Glossary - Short Selling
Short selling involves borrowing a security and selling it on the open market, planning to buy it back later for less money. Short sellers bet on and profit from a drop in a security's price. This strategy can be risky as losses can theoretically be infinite, given that a stock's price can rise indefinitely.
Also known as
- Shorting
- Going Short
- Short Trading
Use cases examples
- Financial News Article: Hedge fund XYZ has initiated a short position in Company ABC, expecting its stock price to fall following regulatory scrutiny.
- Investment Strategy Report: Our latest short selling strategy targets tech startups with overvalued stock prices, using rigorous analysis of their cash flow and market saturation.
Considerations for investors
- Short selling carries significant risk, including the potential for unlimited losses, making it critical to conduct thorough due diligence.
- Investors should be aware of regulatory requirements and restrictions related to short selling in different markets.
Considerations for founders
- Understanding the impact of short selling on your company’s stock can be crucial, especially in times of volatility.
- Monitoring the level of your company's stock being shorted can offer insights into investor sentiment and potential financial health.
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