If a hedge fund is said to be 'shorting' shares in a company, this means the fund is:

• A. Buying shares to hold as a long term investment.
• B. Selling shares it owns.
• C. Buying shares with a view to flipping them at a profit in the short term.
• D. Selling shares it does not own currently.

Answer: (D)

Short selling means selling shares you don’t currently own by borrowing them, with the plan to buy them back later at a lower price. In this scenario, the hedge fund is selling shares it does not own currently, which is the essence of shorting. The goal is to profit from a decline in the stock price, returning the borrowed shares later and keeping the difference.

This differs from buying shares to hold as a long-term investment (you own the shares), or selling shares you already own (that reduces existing holdings, not a short position), or buying shares to flip for a quick profit (that’s speculation on price, not borrowing and selling what you don’t own).