Short Selling Strategy

A short selling strategy involves betting on the decline of an asset price by borrowing the asset to sell it, with the intent to buy it back later at a lower price. In the derivatives market, this is achieved through shorting futures contracts or buying put options.

This strategy is critical for price discovery, as it allows participants to express negative sentiment and hedge against potential losses in long portfolios. While profitable in a downward trend, short selling carries significant risk, including the possibility of infinite losses if the market moves against the position.

It requires careful management of margin requirements and an understanding of the potential for short squeezes.