How to Short a Stock: Short Selling & Borrowing

If you've ever wanted to make money from a company's misfortune, selling stocks short can be a profitable -- though risky -- way to invest.

By Matthew Frankel, CFP – Updated Nov 11, 2024 at 9:47 PM

Key Points

Short selling lets investors profit from declining stock prices by borrowing and selling shares, then repurchasing them at a lower cost.
If the stock price rises, short sellers must buy back shares at a higher price, risking substantial losses.
Short selling provides market liquidity and prevents overpricing, but involves complex risks not all investors grasp.

Sometimes investors become convinced that a stock is more likely to fall in value than to rise. If that's the case, investors can potentially make money when the value of a stock goes down by using a strategy called short selling. Also known as shorting a stock, short selling is designed to give you a profit if the share price of the stock you choose to short goes down -- but can also lose money for you if the stock price goes up.

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A diagram explaining how to short a stock in five steps. — Image source: The Motley Fool

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Be careful with short selling

Short selling can be a lucrative way to profit if a stock drops in value, but it comes with big risk and should be attempted only by experienced investors. And even then, it should be used sparingly and only after a careful assessment of the risks involved.

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Expert Q&A

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst and personal finance expert covering financial stocks, REITs, SPACs, and personal finance. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, The National Desk, and other TV networks and publications for his financial, stock market, and investing expertise.

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