What is short selling?
Short selling is a way of trying to make a profit from securities going down in value. You borrow securities to sell at their current price, but you don't pay for them until prices have gone down so you can pocket the difference. You'll make losses if prices go up. This strategy is also called 'going short', 'selling short' or even 'shorting'.
Where have you heard about short selling?
It got a bad name following the financial crash in 2008, as widespread short selling was believed to have influenced large falls in stock value. However, it's still popular with traders.
What you need to know about short selling...
Short selling is done through a broker, who loans you the shares to sell at their current value, but you don't buy them until you 'close' your position. By then you're hoping that the price will have come down. The difference between what you sold them for and what you ended up paying for them is your profit or loss.
Investors might 'go short' as part of a speculation strategy. They predict that the price of a security will go down so they sell short to try and profit from this predicted price movement. This is a risky strategy though, as they could suffer substantial losses if the price in fact rises.
More risk averse investors may use short selling as part of a hedging strategy, they 'short' a security to offset some of the risks of a long position. They 'go long' in the belief that the price of a security will rise but if it instead goes down, the gains from their short position can mitigate their losses. This can be an expensive strategy though and it doesn't eliminate basic risk.
In order to short sell you'll need an account with a broker, and that typically involves some margin which adds to the risk as you'll be paying interest on this.