shortseller

A short seller is an investor who sells a security they do not own, with the expectation that the price of that security will fall. They borrow the security from a broker and sell it on the open market. If the price of the security indeed drops, the short seller can then buy it back at the lower price, return it to the broker, and pocket the difference. This strategy is also known as "shorting" or "going short."

The primary motivation for short selling is to profit from a decline in the price of a security. Short sellers often believe a company is overvalued, has poor fundamentals, or is facing significant headwinds that will negatively impact its stock price. They are essentially betting against the company.

Short selling can be a risky strategy. If the price of the security rises instead of falls, the short seller's losses can be theoretically unlimited, as they would have to buy the security back at a higher price to return it to the lender. This contrasts with buying a stock, where the maximum loss is the initial investment.

Short sellers can play a role in market efficiency by bringing attention to overvalued or fraudulent companies. However, they can also be accused of manipulating stock prices downwards, especially in cases of coordinated short selling. Regulatory bodies monitor short selling activities to ensure fair market practices.