The Risks of Short Selling Short sellers theoretically face unlimited risk because there is no limit to how high a stock price can go, whereas a long buyer can never lose more than the purchase price of the stock. On occasion, certain stocks, for various reasons, become non-shortable. In other words, all borrowed stock is required to be returned to the brokers. This can be a dangerous situation as the price of the stock can rise dramatically as traders buy the stock to cover their short positions. The Benefits of Short Selling Selling stocks short can be an extremely profitable trading technique for the day trader.
Stocks fluctuate in price throughout the day, both up and down.
When the price of a stock rises, it often increases slowly due to buyers' careful consideration and incremental profit taking during the rise. But when a stock's price decreases, the drop is often sharp and pronounced. The key word here is FEAR, as traders often sell long positions out of panic on signs of any weakness. Another benefit of short selling is, as of now, long players far outnumber short sellers. This can be a tremendous advantage to the savvy day trader who knows how to leverage this imbalance of buyers and sellers in the marketplace.