Orders and trading · updated October 21, 2026
What is short selling and how do you profit when the price falls
Short selling means selling shares you do not own, borrowed through your broker, and buying them back later. You make money if the price falls and lose if it rises. The loss has no limit, because the price can rise without end.
Short selling formula
- Sale price
- The price at which you sold the borrowed shares.
- Buyback price
- The price at which you buy them back to return them.
- Costs
- The fee for borrowing the shares, commissions, and any dividends you pay the owner while the position is open.
Worked example
You short 100 shares at $50. The price falls to $40 and you buy them back.
If the price had climbed to $80, you would have lost $3,000, three times more than the possible gain here.
Worth knowing
For a beginner, short selling is one of the riskiest things you can do: the maximum gain is 100% (if the price goes to zero), while the loss can be several times what you put in.
When short selling can fool you
Unlimited loss: a stock can rise 200% in a few days. The short squeeze: when many have sold short and the price rises, they are all forced to buy at once, which pushes the price even higher. Dividends: while the position is open, you pay the dividend to the owner of the shares.
Related terms
Learn it in the Academy
Questions about short selling
Can I short from any account?
No. You need a margin account, and the broker needs shares to lend. Many European brokers only offer shorting through CFDs.
Why is a short squeeze dangerous?
Because the price rises precisely because of those who have to buy to close their positions. GameStop rose more than tenfold in January 2021 for this reason.
These explanations are for information only. They are not a recommendation to buy or sell.
Back to the glossary