Definition ∞ Short sellers are market participants who profit from a decline in an asset’s price by selling borrowed assets and buying them back later at a lower cost. This trading strategy involves borrowing an asset, selling it at the current market price, and subsequently repurchasing it at a reduced price to return to the lender. The difference between the selling price and the repurchase price, minus any borrowing fees, constitutes the profit. Short sellers play a role in price discovery and can provide liquidity, but their activities also carry substantial risk if the asset price rises.
Context ∞ In digital asset markets, short sellers contribute to price discovery and can help correct overvalued assets, though their actions can also exacerbate downward price movements. Discussions often concern the availability of assets for shorting, particularly in nascent or less liquid cryptocurrency markets. Future regulatory clarity on derivatives and lending protocols may influence the prevalence and mechanisms for short selling digital assets.
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