Short Selling — Betting Against

Sell high, buy back low

Shorting: borrow shares, sell them, hope to repurchase cheaper, return them. Profit = sell price − buy price. It is a legitimate tool — short sellers expose fraud (Enron, Wirecard, Luckin) and provide liquidity. But the risk profile is inverted: long stock risks what you invested; short stock risks UNLIMITED upside (price can rise forever).

The squeeze

Short interest above ~20% of float is a crowded trade. If price rises, shorts get margin-called and forced to buy — which pushes price higher — which forces more shorts to buy: a short squeeze. GameStop 2021: 100%+ short interest, price went from $20 to $483. Shorting is a tool for professionals with strict risk limits; a beginner shorting is bringing a knife to a rocket-launcher fight.

Borrow costs & dividends

Shorts pay borrow fees (hard-to-borrow names can cost 50%+ annualized) and owe any dividends the lender would have received. Time works against shorts: you can be right eventually and bankrupt first. Keynes: "Markets can remain irrational longer than you can remain solvent." He was talking about exactly this.

Sources

• Short SellingInvestopedia
• Short SqueezeInvestopedia