Short selling

Short selling is an investment strategy in which an investor borrows securities, sells them, and later repurchases them to return to the lender. It profits when the repurchase price is lower than the sale price, before costs.

Securities lending: The temporary transfer of securities from a lender to a borrower, usually in exchange for collateral and a fee. It supplies the borrowed shares that make a conventional short sale possible.
Hedging: An investment practice that reduces exposure to price changes by taking an offsetting position. A short position can offset losses on a related holding.
Long position: An investment position that gains value when the price of an owned asset rises. Unlike a short position, a long position benefits from rising prices and has limited loss when fully paid.
Price discovery: The process by which trading incorporates information into market prices. Short sellers can express negative information that long-only investors may not act on.
Short sale: A transaction in which borrowed securities are sold, creating an obligation to return equivalent securities to the lender. This is the sale step that establishes the short position.
Pairs trading: A market-neutral strategy that takes opposite positions in two historically related securities. Traders may short one security while buying its paired counterpart.
Put option: A contract giving its buyer the right, but not the obligation, to sell an asset at a specified price by a set date. A put can express a bearish view without borrowing shares, though it expires and has a purchase premium.
Bear raid: A suspected or coordinated effort to drive a security’s price down through aggressive selling and negative publicity. The term captures fears that short selling can be used to amplify downward pressure.
Margin account: A brokerage account that uses deposited assets as collateral for trades and borrowing. Short positions require collateral because losses can grow as the security price rises.
Convertible arbitrage: An investment strategy that buys convertible securities and often shorts the issuer’s stock to hedge equity exposure. Its stock short can offset risks in the convertible bond position.

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