How can anyone make money when a share price falls?

You borrow the shares, sell them, and buy them back later. Being short in an asset means investing so as to profit if its value falls, the opposite of the more common long position. In short selling, the investor borrows an asset such as a share, sells it, and must later buy the same amount back to return to the lender.

A standard worked example makes it concrete. A short seller borrows 100 shares of a company trading at $10 and sells them for $1,000. If the price falls to $8, buying 100 shares back costs $800, and the short seller keeps the $200 difference, minus borrowing fees. If instead the price rises to $25, the short seller has to buy them back for $2,500 and loses $1,500. Because a share's price can in theory rise without limit, the potential loss is theoretically unlimited. That is why a short seller is typically required to post margin with the broker as collateral.

Short selling has a long history. It was likely invented in 1609 by Isaac Le Maire, a sizeable shareholder of the Dutch East India Company. It has often been unpopular, because it is perceived to put downward pressure on prices: short sellers were among those blamed for the Wall Street crash of 1929, and Congress's response was a ban on short sales during a downtick, which stayed in effect until 2007.

Defenders say shorting helps the market work. They call it an essential part of price discovery. A Duke University study found short interest indicates poor future stock performance, and Warren Buffett has said short sellers are useful in uncovering fraudulent accounting. Critics counter that heavy shorting of struggling firms puts further downward pressure on prices.

It can also backfire in a spectacular way, called a short squeeze, when rising prices force short sellers to buy back shares, pushing prices up further.