What is short selling?

It’s an investment strategy for the boldest risk-takers, essentially. 

“Short selling” is when investors bet on a share price falling rather than rising, which is usually what the ideal endgame is when buying stocks. They sell borrowed shares on the open market and enter an agreement to buy them back later. If the price falls, they pocket the difference.

Yes, but: It’s a risky game. If the stock’s price rises, investors have to buy them back at a higher price… and there’s no limit to your losses. When you buy a stock, the worst that can happen is you lose 100% of it. When you engage in short selling, you could lose way more than that. 

Case in point: In 2021, some Wall Street big shots (hedge funds) were all set to short sell GameStop’s struggling stocks, until internet folks, led by Keith Gill, known as Roaring Kitty, flipped the script — encouraging retail investors to pile in — and sent those stocks soaring. 

  • This week, Gill’s back in the spotlight after posting a meme Sunday night that seems like a nod to those glory days. Come Monday morning, GameStop stocks started to rise again. 
  • Unlike in 2021, momentum has slowed quickly. GameStop’s shares slumped on Wednesday after a two-day rally, tumbling nearly 30%, after it rose 60% on Tuesday. 

The next meme stock? Some short sellers have been eyeing Trump Media, which began publicly trading in late March, as their next target, because they believe it’s going to drop in price. But, Trump Media executives (and his supporters) are trying to rally the stock to squeeze investors.