In stock-market investing, what does short selling involve?

In stock-market investing, short selling involves selling borrowed shares with the aim of buying them back later at a lower price.

A short seller generally borrows shares through a broker and sells them in the market. To close the position, the seller later purchases equivalent shares and returns them to the lender. If the repurchase price is lower, the difference can represent a profit before fees and other costs. If the price rises, the short seller loses money.

Short selling reverses the usual order of investing, in which a person buys first and sells later. Because a stock price can theoretically rise without a fixed ceiling, short-selling losses can be very large. Brokers therefore impose collateral and margin requirements.

Short selling is different from simply selling shares already owned. Regulators and exchanges may also apply special rules during stressed or disorderly markets.