Microstructure · Core
Short Selling
Short selling is selling a borrowed security, hoping to buy it back cheaper — a negative inventory financed by the borrow.
Definition
You locate and borrow shares, sell them, and owe the shares back. You pay borrow fee, dividends, and the risk of a recall or buy-in. Naked shorts without a locate are restricted. Profit is limited by zero; loss is not.
Why it matters
Price discovery needs a way to express ‘overvalued.’ Crowded shorts plus a squeeze are a flow regime, not a morality play.
Case
A hard-to-borrow name with 30% borrow and 25% of float short. The fundamental can be right while the mark is a squeeze.
How to read it
Borrow availability, fee, days-to-cover, and who is short. A cheap thesis with no borrow is a postcard.
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