How It Works
Short selling is generally carried out as a "margin sale" within margin trading. An investor borrows shares from a securities firm and sells them on the market, then buys them back once the price has fallen and returns the borrowed shares, with the difference between the sale price and the buyback price becoming a profit (or loss).
Risks
While a decline in the stock price generates a profit, if the price rises against expectations, the potential loss is theoretically unlimited. There are also costs involved in borrowing the stock, such as a stock loan fee. It is necessary to understand that this carries a different risk profile from a long position in a regular cash transaction.