Short Selling

Short selling — or “going short” — is a way of profiting when you believe an asset’s price is going to fall. It might seem counterintuitive at first, because most people think of investing as buying something and hoping it goes up. But short selling flips that script: you effectively borrow an asset, sell it immediately at the current price, wait for the price to drop, buy it back cheaper, and return it to whoever you borrowed it from — keeping the difference as profit.

In crypto markets, most short selling happens through derivatives like futures or perpetual contracts rather than actual borrowing and selling. The mechanics are slightly different, but the economic outcome is the same: if the price goes down after you open your short position, you make money; if it goes up, you lose. Short selling is a powerful but risky strategy, because unlike buying an asset (where your maximum loss is 100% of what you paid), a short position has theoretically unlimited downside — a price can rise indefinitely, meaning your losses can grow without bound.

Example: Imagine your neighbor owns a rare collector’s card currently selling for $100. You borrow the card, agreeing to return it later. You immediately sell it to someone else for $100. A month later, the card’s value drops to $40. You buy one for $40, return it to your neighbor, and pocket the $60 difference. That’s short selling. The risk: if the card rises to $200, you’d have to pay $200 to buy one back, losing $100 on the deal.