Why borrow a stock to bet against it?
Buying a share is a bet that its price will rise. Short selling reverses the exposure: the seller owes shares rather than owning them, so a declining price can create a gain. Investors may use the strategy when they believe a company is overvalued or facing trouble, or to offset losses elsewhere in a portfolio.
The borrowed shares typically come through a broker, which arranges a loan from an investor or another institution holding them. The short seller must maintain collateral and may pay a borrowing fee; if the stock pays a dividend while the loan is open, the borrower generally has to compensate the share lender for it. Those costs make timing important: a price can fall eventually and the trade can still lose money if it takes too long or expenses mount.
The risk runs in the opposite direction
A conventional stock purchase cannot lose more than the amount invested if the shares fall to zero. A short sale has no comparable ceiling: a stock can keep rising, forcing the short seller to spend more and more to close the position. Brokers can demand additional collateral, or close the trade if the account cannot meet that demand.
If many short sellers rush to buy shares back at once, their purchases can push the price higher, making other short sellers' losses worse. This feedback loop is called a short squeeze. It helps explain why a short position is not simply a delayed purchase: the borrower faces ongoing costs and obligations while waiting for the market to move as expected.
