Bernard Baruch once said "To enjoy the advantages of a free market, one must have both buyers and sellers, both bulls and bears. A market without bears would be like a nation without a free press. There would be no one to criticize and restrain the false optimism that always leads to disaster." Selling short involves selling a security that the seller does not own, but promises to deliver it by borrowing it from someone else, in order to profit from the subsequent price drop. Selling short is done by specialists on the exchanges, market makers, block traders, institutions, money managers and individuals.
Short sellers expect price appreciation to be limited. They make a bet that the price of the stock will go down after they sell it short. The toughest call for a short seller or an investor, even in a bull market, is the decision of when to sell since it is perceived as risky and speculative. Selling short is criticized as an investment alternative. The reason behind this criticism is that although the stock can go to zero and provide a nice profit, it can also go up to infinity and the losses that can occur are terrifying. However, short sellers respond to this criticism by stating that the chances for a stock to go down is higher, and have seen this in the past, than stocks to go to infinity. Therefore, short sellers must be confident with their conclusions and analytical studies since their risks are greater than any other investors. Short sellers are usually considered hard-working and creative individuals who enjoy going against the odds and competing against the minds of Wall Street or the prices of the stocks.
Specialists on the exchanges, market makers and block traders sell short in order to create supply when large orders cause temporary trade imbalances that result in volatile prices. Institutions, money mangers and individuals sell short to speculate on price declines.