Have you ever noticed that when the stock market crashes hard, some people, instead of panicking, seem to have been waiting for that moment all along? How do they do it? The answer is Short Selling — a strategy where "the more the price drops, the more money you make." This is something many investors still don't fully understand.

Let's start with the risks you need to know first, because this is the most important part. Short Selling is not a game for beginners. Losses can be unlimited. If you short a stock at 100 baht and the price rises to 200 baht, you lose 100 baht. If it rises to 500 baht, you lose 400 baht. There’s no cap. The most painful example happened to Melvin Capital when they shorted GameStop in 2021. The price soared from $20 to $483, resulting in over $6.8 billion in losses in just one month. That’s a huge amount of money—comparable to millions of yen or tens of thousands of baht.

So, what exactly is Short Selling? It’s borrowing shares at a high price and waiting for the price to fall so you can buy them back cheaper. The difference between the selling price and the buy-back price is your profit. Imagine simply: your friend has a phone worth 30,000 baht. You borrow it and sell it immediately. The 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.

But it gets more complicated in practice. First, you need to contact a broker to borrow shares through the SBL system and put up margin as collateral. Then, you sell the borrowed shares in the market, wait for the price to drop as expected, buy them back, and return them to the broker, pocketing the profit. Sounds simple, but here’s the problem — if the price doesn’t go down but instead rises, you start losing money immediately.

Another dangerous risk is Margin Call. As losses increase, the margin in your account decreases. If it falls below the minimum, the broker will force you to deposit more money quickly or automatically close your position. If this happens while the price is rising rapidly, you might be forced to close at a very bad price.

Then there’s Short Squeeze — the most brutal trap. It occurs when heavily shorted stocks suddenly rise sharply. Short sellers rush to close their positions at the same time, pushing the price even higher. Most victims are those who shorted too much without a stop-loss.

And another point — borrowing shares isn’t free. There’s a Borrow Rate, calculated daily. For heavily shorted stocks, the borrow rate can be as high as 30-100% per year. If you hold a short position for a long time, these fees can eat up all your profits.

So why do some people still short? Because in certain periods, short selling can be very effective, especially during bear markets or when stocks are clearly overvalued. A good example is during COVID-19 in 2020, when energy stocks like PTT and PTTEP were heavily shorted due to falling global oil prices. Airlines like AOT dropped from 85 baht to below 40 baht. Those who shorted successfully made real profits. Michael Burry, for instance, made about $700 million from shorting the subprime market during the 2008 crisis.

In Thailand, Short Selling is legal but with strict conditions. Not all stocks can be shorted. Since July 1, 2024, the SET has updated the rules: stocks eligible for shorting must have a market cap of at least 7.5 billion baht, a free float of at least 20%, and follow the Uptick Rule — the short price must be higher than the latest price. This is to prevent people from exacerbating the market during a decline.

If you’re a beginner wanting to speculate on a downtrend without unlimited risk, there are alternatives like Single Stock Futures on TFEX or Options, which include automatic stop-loss features, or inverse ETFs that profit when the market drops. But these options generally carry less risk.

In summary, Short Selling is not for everyone. It’s suitable for investors with at least 2-3 years of experience, clear stop-loss strategies, and deep understanding of technical analysis. If you’re still a beginner, it’s better to master going long first.