Have you ever seen the stock market drop while profits increase? That’s the story of people who understand short selling quite well. Most people think that when the market falls in price, they must be losing money—but in reality, there’s a technique called short selling that makes “the lower the price goes, the more profit you make.” I’ve seen many people still not fully understand this system, so I want to share what short sell is, how it works, and what risks it involves.

Simply put, short sell is borrowing stocks to sell first at a high price, then waiting for the price to fall so you can buy them back at a lower price. Your profit is the difference between those two prices. Think of it like this: suppose your friend has a phone worth 30,000 baht. You borrow it and sell it. Next week, a new model comes out and the price drops to 20,000 baht. You buy it back from your friend and make a profit of 10,000 baht. That’s the basic principle of short selling.

Here’s the step-by-step process of doing short sell. First, you need to contact a broker to borrow stocks through the SBL (Securities Borrowing and Lending) system and place margin with the broker. Second, you sell the borrowed stocks in the market at the current price. Third, you wait for the price to drop as expected. Fourth, once the price falls, you buy the stocks back. Finally, you return the stocks to the broker and keep the profit from the price difference.

A real example: if you short a stock at 100 baht and the price drops to 70 baht, your profit is 30 baht per share. The more the price falls, the higher the profit. Cases where short selling performs very well are often when the stock is clearly overvalued, before the announcement of poor earnings results, or during a market crash—like in 2008, when Michael Burry profited more than $700 million from shorting the subprime market.

But the scary part is that if the price rises instead of falling, you’ll lose money—and losses can have no limit. Unlike normal stock buying, where the maximum loss is limited to the amount you invested, stock prices can rise without limit, and losses can therefore also have no limit. A painful example is in 2021, when retail investors from Reddit pushed back against short sellers on GameStop, causing the price to surge from $20 to $483. Melvin Capital, which had shorted GME, lost more than $6,800 million within just one month.

On top of that, there’s the risk of a margin call, where the broker forces you to add funds. A short squeeze is a terrifying trap, plus borrowing fees can eat into your profits, and getting the timing wrong can be costly. Even if your analysis is correct and the stock is overvalued, if the market keeps pushing sentiment upward, you may not make it.

In Thailand, short selling is legal, but only under certain conditions. Starting from 1 July 2567, the SET updated its measures, from the requirements for stocks that can be shorted (must have a market cap of no less than 7,500 million baht) to the uptick rule, which requires the short sale price to be higher than the latest price. This means you can’t short every stock, and you can’t do it at any time.

For beginners, I don’t recommend starting with short selling directly. The risk is too high. If you want to speculate on a downward trend without facing the unlimited-loss risk of short selling directly, there are other options such as futures, options, or inverse ETFs, which can help manage risk better.

In summary, short sell is an effective tool for experienced investors, but you must have discipline to cut losses and a deep understanding of market mechanics. If you’re not ready, don’t try it yet—because the market can be crazy for longer than you can afford to stay solvent.