Short selling can be a way for traders to profit from downturns in stocks and protect themselves from losses. The risk of loss theoretically is unlimited since the price of a stock can go to infinity.
Here's how short selling works:
The trader borrows a stock from a broker.
The trader immediately sells the borrowed shares on the open market at the current market price.
If the price of the shares falls as expected, the trader can buy them back at a lower price.
The trader returns the borrowed shares to the broker, keeping the difference between the selling price and the buying price as profit.
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