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Short selling is the selling of borrowed securities in anticipation of a fall in prices. An investor borrows or temporarily acquires securities from a third party, sells them to his counterparty and is paid for them. After the price has fallen the investor buys the securities in the market and returns them to the third party they were borrowed from. The investor's profit is the difference between the price the securities were sold at and the price they were bought at. If prices rise, however, the investor will have to buy them at a higher price than they were sold at and so will make a loss. The act of buying back to cover the short position is known as short covering. Few investors use short selling as a money making strategy. Most short sales are made as a hedge against a long position.
See also: Naked Short, Hedging, Stock Lending