Dive deeper: How to short a stock
10 most shorted stocks
Betting on heavily shorted stocks can mean big rewards. But with high rewards come high risks.
10 most shorted stocks
Here are 10 of the most shorted stocks based on short float percentage. Short float percentage refers to the percentage of a company’s stock that institutional investors have shorted compared to the stock available for public trading.
| Stock | Short float % | 1Y performance |
|---|---|---|
Digital Brands Group Inc. (Nasdaq: DBGI) | 58.56% | -98.37% |
Kalera Public Limited Company (Nasdaq: KAL) | 55.46% | -99.13% |
OncoSec Medical Incorporated (Nasdaq: ONCS) | 49.49% | -94.00% |
Mullen Automotive, Inc. (Nasdaq: MULN) | 47.40% | -95.24% |
Carvana Co. (NYSE: CVNA) | 46.21% | -97.68% |
Bed Bath & Beyond Inc. (Nasdaq: BBBY) | 46.20% | -82.15% |
Tricida, Inc. (Nasdaq: TCDA) | 44.58% | -98.02% |
PaxMedica, Inc. (Nasdaq: PXMD) | 44.46% | -48.65% |
Beyond Meat, Inc. (Nasdaq: BYND) | 42.33% | -78.11% |
Silvergate Capital Corporation (NYSE: SI) | 39.88% | -87.27% |
Source: MarketWatch (Dec. 14, 2022)
How does stock shorting work?
When shorting a stock, investors borrow and resell stocks they believe will decline in value. These investors hope the stock will continue to fall in value, so they can buy back the stocks at a lower price and pay off the loan, pocketing the difference.
Essentially, it’s betting that the value of a stock will fall. If you’re right, you make money. If you’re wrong, you could lose a lot more than you bargained for. That’s because there aren’t any limits to how high a stock’s price may rise, and the more it rises, the more you lose.
Taking a contrary position to shorting can be profitable, too. By investing in a shorted stock, you contribute to the stock’s value. As a result, the stock price rises and puts pressure on those with short positions to close positions by buying even more — which drives the price up further.
Why do shorted stocks matter?
For evidence of the power of shorted stocks, look no further than GameStop.
In January 2021, GameStop was among the most shorted stocks on Wall Street. The hedge funds that bet against it stood to make a lot of money if GameStop’s stock stayed low. But participants in the Reddit message board Wallstreetbets noticed the GameStop shorting trend and decided to raise its price and squeeze hedge funds that had bet against the company.
Thanks to Reddit, retail investors flocked to buy GameStop’s stock. As a result, the stock skyrocketed in value by over 1,000%. And the hedge funds that shorted the stock lost billions.
There’s money to be made in shorting stocks, but the GameStop rollercoaster ride demonstrates just how dangerous and temperamental the game can be. Before getting involved, investors should exercise caution.
The risks of shorting stocks
Before you hop on any short stock bandwagons, take a moment to consider the risks.
No investment is risk-free, especially short selling, which should only be attempted by experienced investors. If you short a stock and the price unexpectedly goes up, you may owe far more than your initial investment — especially if the rising stock price causes other short sellers to start closing out their positions.
Even though backing a shorted stock may seem like a lucrative opportunity, stocks under this type of pressure tend to be highly volatile. With no clear exit strategy, you could stand to lose a sizable amount of capital.
Shorted stocks are volatile and behave erratically. Before getting involved, monitor your positions carefully.
Open a trading account to short sell stocks
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Bottom line
Short selling is risky — but potentially lucrative. Do the risks outweigh the potential gains? It depends on your investment goals and experience level. To invest in shorted stocks, review your brokerage options to find one that best fits your investment goals.
Related: Stock trading
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
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