Short selling

Short selling is the sale of a borrowed asset in the hope of buying it back later at a lower price, returning it to the lender and keeping the difference. The sequence of ordinary investing is reversed: the sale comes first, the purchase second, and the position profits when the price falls. Because the asset must eventually be bought back at whatever the market then charges, the potential loss has no fixed ceiling — a price can rise without limit, and the cost of repurchase rises with it.

A worked example

Imagine borrowing a share and selling it at a hypothetical £50. If the price falls to £40, buying it back costs £40, and the £10 difference is the gross gain before any borrowing costs. If instead the price rises to £75, the repurchase costs £75 and the position loses £25 — and nothing in the structure stops a larger rise from producing a larger loss.

Short selling describes a mechanism, not a forecast. It says nothing about whether or when a price will fall, what borrowing the asset costs, or whether the lender may recall it early.