Shorting: meaning, definitions and examples
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shorting
[ ˈʃɔrtɪŋ ]
financial strategy
Shorting, or short selling, is a trading strategy that investors use to profit from the decline in the price of a stock or other security. It involves borrowing shares, selling them at the current market price, and then buying them back at a lower price to return to the lender. If the stock price decreases, the short seller can make a profit, but if it increases, they can incur substantial losses.
Synonyms
betting against, short selling, speculation.
Examples of usage
- Many investors are wary of shorting stocks.
- He made a fortune by shorting the market during the recession.
- Shorting is a risky but potentially profitable strategy.
Etymology
The term 'shorting' originates from the practice of short selling in stock trading, which can be traced back to the 17th century when investors began borrowing shares of stocks to sell with the intention of repurchasing them later at a lower price. The concept emerged in the context of developing financial markets in Europe, particularly the Netherlands and England, and was formalized with the establishment of stock exchanges. Initially, it was considered a risky maneuver, viewed with skepticism by traditional investors, but as financial theory evolved, shorting became recognized as a legitimate strategy. The term 'short' itself, referencing the action of selling something one does not own, reflects the brevity of the position taken by the seller in comparison to owning a stock outright.