What is short selling?
Short Selling Explained
Short selling is a strategy to profit when a stock's price declines. You're essentially betting against a stock.
Trading Game is a simulator that uses real market prices, but it does not connect to brokers and does not execute real trades. This article explains how short selling works in real markets so you can understand the concept while learning.
How It Works
- Borrow shares from a broker
- Sell borrowed shares at current price
- Wait for price to drop
- Buy shares back at lower price
- Return shares to broker
- Keep the difference as profit
Example
Stock XYZ is at $100. You short 10 shares:
- Sell 10 shares at $100 = $1,000
- Price drops to $80
- Buy back 10 shares at $80 = $800
- Profit: $200
Risks of Short Selling
- Unlimited Loss Potential - Stock can rise indefinitely
- Short Squeeze - Rapid price increase forces covering
- Margin Requirements - In real trading, you may need to maintain sufficient collateral with your broker
Warning: Short selling is risky. Losses can exceed your initial investment in real trading. Trading Game uses paper trading only and does not execute real short sales.
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