Short selling is an investment strategy in which an investor borrows shares of a stock or other asset, sells them on the open market, and then repurchases them later at a lower price to return to the lender. The goal of short selling is to profit from a decline in the price of the asset. If the price of the asset falls, the short seller can buy it back at a lower price, pocketing the difference between the sale price and the repurchase price. However, if the price rises, the short seller may incur significant losses, as they will have to buy back the asset at a higher price than they sold it for.

Short selling is often used by investors who believe that a particular stock or asset is overvalued and will decrease in price. It is also used by traders as a way to hedge against potential losses in other investments. For example, an investor who owns a portfolio of stocks might short sell a stock they believe is overvalued to offset potential losses if the market declines. Additionally, short selling can be used as a speculative strategy to profit from anticipated market downturns or specific events that are expected to negatively impact a company's stock price.

While short selling can be profitable, it is also a high-risk strategy that comes with significant potential losses. Unlike traditional investing, where the maximum loss is limited to the amount invested, short selling carries unlimited risk because there is no limit to how high a stock's price can rise. If the price of the asset increases instead of decreasing, the short seller may be forced to buy it back at a much higher price, resulting in substantial losses. As a result, short selling is generally considered more suitable for experienced investors who are comfortable with higher levels of risk.

Short selling also has ethical and regulatory considerations, as it can contribute to market volatility and has been criticized for potentially destabilizing companies and financial markets. In some cases, regulators may impose restrictions on short selling during periods of market stress to prevent excessive downward pressure on stock prices. Despite these risks and challenges, short selling remains a widely used strategy in financial markets, particularly among hedge funds, institutional investors, and experienced traders.