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Mind and markets

Lesson 101 · Written for kid, teen, and little

Short Selling

Short selling is betting a price falls, and it can go very wrong.

The idea

Short selling means borrowing a share, selling it straight away, and hoping to buy it back later for less. If the price falls, you keep the difference; if it rises, you still have to buy it back at whatever it now costs. A share you own can only fall to zero, but a share you owe has no ceiling, because the price can keep climbing. That is why short selling is considered one of the riskiest things anyone can do with money. 📉

A

Words to know

5

Short selling

Selling borrowed shares and later buying shares to return them. Selling at $50 and buying back at $40 gives a $10 gross gain before borrowing costs, fees or taxes.

Borrow

To take something with a promise to give it back. A short seller borrows the share itself, not money.

Covering

Buying the share back so you can return what you borrowed. If the price rose to $70, covering costs you $20 more than you got.

Unlimited loss

Short-sale losses have no fixed maximum because the share price can keep rising. Buying a $50 share entirely with your own money limits the price loss to $50; borrowing changes the risk.

Going long

Owning something and hoping its price goes up. It is the normal way to invest, and the opposite of shorting.

Try it — no accountTrue or false

True or false about short selling?

Card 1 of 4

Short selling means selling something you borrowed and buying it back later.

Swipe the card — or tap.

In the full lesson

  1. 1True or false
  2. 2Work out the number
  3. 3Make the call

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