Short selling means borrowing shares you don't own and selling them, hoping to buy back cheaper later. Profits from declines but has unlimited loss potential if the stock rises. Requires a margin account.
Answer: Falls below where you shorted it. You borrow shares, sell at a high price, then buy back cheaper — pocketing the difference.
Answer: Theoretically unlimited (stock can rise infinitely). A stock can theoretically rise to infinity — so a short seller's loss is unlimited, making it extremely high-risk.
Answer: Heavy short interest forces shorts to cover as price rises, accelerating gains. When heavily shorted stocks rise, shorts scramble to buy back shares, pushing the price even higher in a feedback loop.
Answer: Interest paid to borrow shares from the lender. Short sellers pay an annualised borrow fee to the lender of the shares — can be very high for hard-to-borrow stocks.
Practice this with $10,000 in virtual cash in Tradecraft, free paper trading with real market data.
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