Short selling is an investment strategy that speculates on the decline in price of a financial security. Traders typically use this strategy if they believe an asset is going to fall in price in the future and they want to profit from it. The strategy is also used by portfolio managers who want to hedge against the risk of a similar or related security they hold falling in price.

Executing a short sell involves multiple steps. An investor first borrows a security and immediately sell it on with the expectation that the asset’s price will fall. The investor aims to buy back the asset at a lower price in the future, return it to the lender, and profit from the difference between the selling and buying prices. 

Investors can also buy derivatives that enable them to speculate on the fall in price of a particular security. During the 2008 financial crisis, a handful of hedge funds bet against the housing market by buying up large volumes of insurance on housing-linked securities--also known as credit default swaps--and selling the swaps to Wall Street banks at a premium once the housing market crashed, a short selling strategy explored in Michael Lewis’s book The Big Short, which was subsequently adapted into a Hollywood movie. 

Short selling has a high risk-reward ratio. It can offer big profits, but it also carries considerable risks, as the loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity. As such, short selling is an advanced strategy that should only be pursued by experienced traders and investors.