What is a potential downside of short selling?

The potential downside of short selling is characterized by unlimited potential losses. When an investor engages in short selling, they borrow shares and sell them with the expectation that the price will decrease. If the price of the asset rises instead of falling, the investor faces the obligation to buy back the shares at a higher price to return them to the lender. This situation can lead to significant financial losses since there is theoretically no upper limit to how high the price of the shares can rise. Unlike a long position, where the maximum loss is limited to the total investment (if the asset becomes worthless), short selling exposes the investor to the risk of the price increasing indefinitely, leading to potentially unlimited losses.

Other options do not accurately reflect the risks associated with short selling, as limited profits can occur (due to the share price dropping), guaranteed returns are not possible in investing, and the risk of loss can be substantial, contradicting the notion of low risk.