Shorting

Definition ∞ Shorting, or short selling, in the context of digital assets, is an investment strategy where a trader borrows an asset and sells it, expecting its price to decline. The objective is to buy back the asset at a lower price later and return it to the lender, profiting from the price difference. This strategy allows investors to benefit from a downward market movement. It carries significant risk, as potential losses are theoretically unlimited if the asset’s price rises indefinitely.
Context ∞ The practice of shorting digital assets is a significant aspect of market dynamics, influencing liquidity and price volatility across various exchanges. Discussions often focus on the availability of borrowing mechanisms and the associated risks for both lenders and borrowers. Regulatory bodies are increasingly examining short-selling practices to ensure market integrity and prevent manipulative activities.