tl;dr
A transaction where an investor borrows and sells a security expecting its price to decline, planning to repurchase it later at a lower price.
Short sales provide profit opportunities from price declines but carry significant risks if prices rise instead.
Consider an investor believing a stock priced at $100 is overvalued. They borrow and sell 1,000 shares, hoping to repurchase them later at $80, potentially profiting $20,000 minus borrowing costs. However, if the price rises to $120, they face potential losses of $20,000.
Managing short sales requires careful risk assessment and timing. Organizations must monitor market conditions while maintaining margin requirements.
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