I admit that short selling is a topic many people are curious about, especially when the stock market crashes hard and some can smile and shine, right? How do they make a profit while we're losing everything? The answer is short selling itself — a strategy that makes "the more the price drops, the more money you make." This may seem simple, but the hidden risks are greater than you think.

Let's start with the basics: short selling is actually borrowing stocks to sell at a high price, then waiting for the price to fall so you can buy them back at a lower price. The profit is the difference between the selling price and the buy-back price. Simply put, it's selling something you don't own yet and buying it back later.

Imagine easily: your friend has a phone worth 30,000 baht. You borrow it and sell it immediately. A week later, a new model comes out, and the price drops to 20,000 baht. You buy it back from your friend. Your profit is 10,000 baht. That’s the principle of short selling.

But here’s where you need to be careful: losses from short selling are unlimited. If you buy stocks normally, the maximum loss is limited to your invested amount. But with short selling, stock prices can rise without limit, meaning your losses can also be unlimited.

The most painful case was in 2021, when retail investors from Reddit fought back against short sellers on GameStop. The price soared from $20 to $483 in a short period. The hedge fund Melvin Capital, which shorted GME, lost over $6.8 billion in just one month. This story was made into the movie "The Big Short."

If the price rises instead of falling, a margin call occurs. You need to add funds quickly. If you don’t, your broker will automatically close your position. And if the price surges sharply, you might be forced to close at the worst possible price.

Another risk is called a Short Squeeze, which happens when a heavily shorted stock’s price suddenly jumps. Short sellers rush to close their positions, pushing the price even higher. This creates a vicious cycle. Most victims are investors who shorted too much without stop-loss orders.

Another factor to consider is the borrow rate — the fee for borrowing stocks. Borrowing isn’t free; it’s charged daily. For heavily shorted stocks, the borrow rate can reach 30-100% per year. If you hold a short position for a long time without the price dropping, these fees can eat up all your profits.

In Thailand, short selling is legal but heavily regulated. Since July 1, 2024, the SET has updated its rules: stocks eligible for short selling must have a market cap of at least 7.5 billion baht, a free float of at least 20%, and a 12-month average monthly turnover of at least 2%. This means small, illiquid stocks cannot be shorted.

There’s also an Uptick Rule: the short sale price must be higher than the last traded price. This rule prevents short sellers from taking advantage during a downward price trend.

Why am I sharing this? Because I see many people want to try short selling but don’t fully understand the risks. If you’re a beginner, I recommend exploring other options first, such as CFDs with automatic stop-loss or inverse ETFs. These allow you to experience shorting in a declining market without facing the unlimited loss risk of direct short selling.

Short selling is suitable for investors with at least 2-3 years of experience, deep understanding of technical and fundamental analysis, and most importantly, discipline to cut losses always. Without these qualities, the risks can become uncontrollable.