Short selling is a trading strategy where investors aim to profit from a decline in the price of a stock. Unlike traditional investing, where traders buy low and sell high, short selling involves selling shares first and buying them back later at a lower price. This practice allows investors to benefit from falling markets but also carries higher risk.

In short selling, a trader borrows shares of a company from a broker and sells them in the open market. If the stock price drops, the trader can buy back the same number of shares at a lower price, return them to the broker, and pocket the difference as profit. However, if the price rises instead, the trader faces a loss, as they must repurchase the shares at a higher rate.

Example: Suppose a trader short-sells 100 shares of a company at _500 each, expecting the price to fall. If the price drops to _400, the trader buys them back, earning a profit of _100 per share. Conversely, if the price rises to _600, the trader incurs a loss of _100 per share.

Risks of short selling include unlimited potential losses, as there is no upper limit to how high a stock price can rise. It also requires margin accounts and adherence to regulatory norms. SEBI (Securities and Exchange Board of India) regulates short selling in India to maintain market stability and transparency. Retail and institutional investors are allowed to short-sell in the derivatives market and the cash segment under specified conditions.

In summary, short selling is a complex but strategic approach for experienced traders to hedge portfolios or speculate on price declines. Investors should understand the risks, follow SEBI guidelines, and use this strategy cautiously within a well-diversified investment plan.