Going Short on a Stock is Much Riskier Than Going Longby Tom Murcko
Short selling is riskier than going long by buying stock. When you buy stock, the most you can lose is what you invested. With short selling, the potential loss is unlimited, because you'll have to buy back the shares later and there's no limit to how high a stock can go. Even when a stock is ridiculously overvalued, it can go even higher. And the market can remain irrational longer than you can remain solvent. Also, if a company's management feels that its share price is higher than it should be based on the fundamentals, there are several things it can do to prop up the stock price, by selling more shares to raise capital. And of course, another company might feel that the company you sold short has strategic value to it and might pay a price far above the market price, a price that you'd have to match to cover your position.
Tags: short selling