What is "short selling" in finance?

Short selling in finance refers to the practice of selling borrowed shares of a stock with the expectation that the price will decline. When an investor believes that the price of a stock is too high and will decrease, they can borrow those shares to sell them at the current market price. The goal is to buy back the same shares later at a lower price, return them to the lender, and pocket the difference as profit.

This strategy can be particularly profitable in a bearish market when stock prices are falling. The ability to sell high and then buy back low is at the core of the short selling process. If the stock price indeed drops as anticipated, the short seller can close out the position for a profit. However, if the stock price increases instead, the short seller faces potential losses because they still need to buy back the shares to return them.

The other options, such as buying stocks at a high price, making long-term investments, or working with commodities, do not capture the essence of short selling and its unique strategy of betting against a stock's price appreciation.