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Updated 2mo ago.
Updated 2mo ago.
Short selling means borrowing shares you don't own, selling them at the current price, then buying them back later (ideally at a lower price) to return them to the lender. You profit if the price drops but lose if the price rises. It is an advanced and risky strategy.
You believe stock XYZ.TO (at $50) will decline. You borrow 100 shares through your broker and sell them for $5,000. If the price falls to $35, you buy back the 100 shares for $3,500 and pocket $1,500 in profit (minus fees).
But if the price rises to $70, you must buy back at $7,000 — a $2,000 loss. Theoretically, your losses are unlimited since a stock can rise indefinitely. In Canada, short selling requires a margin account and is not available in registered accounts (TFSA, RRSP).
Short selling is a strategy reserved for experienced investors. The risk of unlimited loss makes it very dangerous for beginners. Some ETFs like HSD.TO (BetaPro S&P/TSX 60 Daily Inverse) offer "inverse" exposure without direct short selling, but they are designed for short-term trading.