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. 📉
Words to know
- Short selling
- Selling a share you borrowed, hoping to buy it back cheaper later.
- Borrow
- To take something with a promise to give it back.
- Covering
- Buying the share back so you can return what you borrowed.
- Unlimited loss
- A loss with no set maximum, because a price can keep rising.
- Going long
- Owning something and hoping its price goes up.
Try it — no account needed
True or false about short selling?
Short selling means selling something you borrowed and buying it back later.
In the full lesson
- 1True or false
- 2Work out the number
- 3Make the call
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