Part 5/7:
Beyond the infinite loss potential, there are other costs associated with shorting stocks. Investors should be aware of stock loan fees, which accrue daily while the position remains open. Consequently, this can eat into your returns over time.
Unexpected market events—such as significant earnings surprises, mergers and acquisitions, or unpredictable incidents like Brexit—can lead to sharp price increases. In such cases, a phenomenon known as a "short squeeze" may occur, where rising prices compel short sellers to quickly buy back shares, further driving up the price.