Part 4/7:
Shorting stocks is generally more perilous than buying them. The principal reason for this heightened risk is the inverted nature of potential outcomes. When you own shares, the maximum loss you can incur is equivalent to your initial investment if the company's stock drops to zero. However, when shorting, while the maximum profit you can achieve is capped at 100% of your initial trade, the potential losses are theoretically limitless.
For instance, if you short a stock at $10, and the price surges to $30, you must repurchase the shares at the higher price. In this situation, your initial $10 gain is overshadowed by a $20 loss.