What is short selling and how to make money from it?

What is short selling and how to make money from it?

Short selling is a key strategy in financial markets, allowing traders to profit from falling prices. Given the high volatility of 2025, particularly in the stock and currency markets of the US, Europe, and Asia, short selling is becoming an important hedging and speculation tool. However, short selling profitability directly depends on understanding how it works, choosing the right instrument, and proper risk management.

What is a Short?

The term "short " refers to the sale of an asset the trader doesn't have, with the subsequent obligation to repurchase it at a lower price. The mechanism is as follows:

A trader borrows shares or another asset from a broker (e.g. Interactive Brokers, Saxo Bank, Tinkoff Investments).

Sells them on the market at the current price.

When the price drops, the trader buys back the asset at a lower price and returns it to the broker. The difference constitutes profit.

On the Moscow Exchange (MOEX), short trading is available on shares of major issuers such as Sberbank, Gazprom, and Lukoil. In the US, short trading is widely used on Tesla, Apple, and Nvidia shares through the NYSE and NASDAQ.

What is short selling and how to make money from it?

Why do traders use short selling?

Shorting is not only a way to make money on a fall:

Hedging: insuring a portfolio against a market decline.
Speculation: playing on short-term movements.
Diversification: balancing long and short positions.

Example: An investor holds a long position in the S&P 500 index but shorts individual overvalued stocks to reduce overall risk.

Risks and limitations of shorting

Despite the attractiveness of the strategy, shorting carries increased risks:

Unlimited losses: the price of an asset can rise indefinitely, unlike a long.

Margin requirements: Brokers require collateral (usually 50-100%).

Short squeeze: a sharp price increase due to massive short-selling. A well-known example is GameStop in January 2021, when the stock price increased more than 25-fold in a month.

Popular strategies for making money on short trades

Technical analysis - searching for resistance levels and reversal patterns.

Fundamental analysis is the identification of overvalued companies with low profits.

Pair trading is opening a short position on a weak stock and a long position on a strong one in the same industry.

News trading is the practice of opening short positions following negative reports or sanctions risks.

Example: In August 2025, shares of several Chinese technology companies on the Hong Kong stock exchange fell by up to 12% following the introduction of export restrictions by the United States. This became a favorable moment for short-selling strategies.

Analytics and forecasts

According to TradingView and Investing.com, short positions are growing in the US tech and cryptocurrency sectors in 2025. Bitcoin, which reached $65,000 in September 2025, is showing signs of overheating, and Citi analysts predict a 10-15% correction in the coming months.

In Russia, interest in short-selling is growing amid ruble instability and high inflation. On the foreign exchange market, the USD/RUB pair, which rose to 100 in early September 2025, has become the target of active short-selling speculation.

How to Safely Make Money on Shorts

Use stop losses to limit losses.

Diversify your positions, don't short your entire portfolio.

Start with liquid instruments (stocks from the S&P 500 index, RTSI).

Follow the news and decisions of regulators (the Federal Reserve System, the ECB, and the Central Bank of the Russian Federation).
Conclusion

Short selling is a powerful trading tool that allows you to profit in a falling market. However, success is only possible with proper risk management and proven strategies. It's important for traders to understand that short selling requires more experience and discipline than traditional long selling.

In 2025, short strategies will be particularly relevant in conditions of increased volatility and global economic risks.

 

Written by Ethan Blake
Independent researcher, fintech consultant, and market analyst.
September 24, 2025

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