Many successful how to short stocks make profits from stocks that rise in value, but some do the opposite by betting against stocks they think will decline. In short selling, you borrow shares from your broker and sell them into the market on the expectation that their price will fall. If you’re correct, you can repurchase the shares at a lower price and pocket the difference. In addition, you’ll pay a fee to your broker for borrowing the stock and you may have to repay the loan in the event of a short squeeze (a sudden surge in the price of a stock scares away many short sellers at once).

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To short stocks, you must have margin trading enabled on your account, which allows you to sell securities you don’t own. Your account will show a negative number of shares when you’re in a short position (-100 shares of XYZ stock, for example). You then place a sell order for the borrowed shares and wait for them to decline in price. When that happens, you can buy back the stock at a lower price and pocket the difference as profit. You also have to pay interest on the borrowed shares.

Traders short stocks for a variety of reasons, from speculation to hedging against potential losses. However, this strategy carries additional rules, risks and fees beyond standard self-directed investing, and it can produce unlimited losses if the price of the stocks you’re shorting keeps rising.