Pros And Cons Of Short Selling – Selling Short Position Explained [Short Squeeze]

Short selling often makes headlines because of so-called short squeeze or when the media is full of predictions about a market top. Stocks are at an all-time high in terms of valuation, commodities have been on a roll, and interest rates are low (and can only go up?). Unfortunately, profiting from a bubble that bursts are insanely difficult.

Short selling is difficult because you are betting against the upwards bias, at least in the stock market. Even worse, you need to pay interest for the privilege of selling short. Additionally, all markets tend to drop fast when they do fall, while most markets rise slowly and gradually. Short selling is much more about market timing compared to when you go long. Short selling is an art that very few masters and mostly involves luck and randomness.

We start the article by explaining exactly what short selling is: