Art of Short selling

Short selling or "shorting" is the practice of selling a financial instrument that the seller does not own at the time of the sale. If you sell a stock you don't own, you are selling short.Short selling is done with the intent of later purchasing the financial instrument at a lower price. Short-sellers attempt to profit from an expected decline in the price of a financial instrument.

Short selling allows investors to profit from falling stock prices. "Buy low, sell high" is the goal . A short sale reverses the order of a typical stock purchase: the stock is sold first and bought later.

Short selling is a marginable transaction. One needs to open a margin account to sell short. This is the same account you would use if you want to use your stocks as collateral margin to trade in the markets.When you open a margin account, you must sign an agreement with your broker. This agreement says you will maintain a cash margin or pledge your stocks as margin.

Short selling is not complex, but it's a concept that many investors have trouble understanding. But Shorting is very, very risky. The mechanics behind a short sale result in some unique risks.

1. Short selling is a gamble
   
2. Losses can be infinite
   
3. Shorting stocks involves using borrowed money(Margin Trading)
   
4. Short squeezes can wring the profit out of your investment
   
5. Even if you're right, it could be at the wrong time.
   

The two primary reasons for selling short are opportunism and portfolio protection. A short sale provides the opportunity to profit from the overpriced stock. Short sales are also used to protect an investor's portfolio against a market downturn. It protects portfolios against erosion due to a broad market decline. Short selling is essential for proper functioning of the stock market as it provides essential liquidity which in turn leads to proper price discovey.