No Session Today
View all rates
Advanced4 min readTrading on the Egyptian Exchange · 11/14

Short Selling: How It Works and Its Risks

Short selling means selling shares you do not own: you borrow them, sell them now, then buy them back and return them. If the price falls you keep the difference; if it rises you lose it.

What you will learn

  • Understand the steps of a short sale in order.
  • Work out the gain and the loss with a numbered example.
  • Know the main rules of the new Egyptian framework and its risks.
The lesson as a short video · 20 seconds · Watch on YouTube
In this lesson
  1. The steps in order
  2. Gain and loss in numbers
  3. The main rules in Egypt
  4. Check yourself
  5. Summary
  6. Related terms

The steps in order

  1. You borrow the sharesFrom an investor willing to lend them for a fee, through a central lending system run by MCDR.
  2. You post collateral and sellYou put up the cash margin and sell the shares on the market within the permitted sale-price rule.
  3. You buy back and returnLater you buy the same quantity, return it to the lender, and pay the borrowing cost.

Gain and loss in numbers

ExampleYou borrow 1,000 shares of an invented company, Manara Tourism, and sell them at EGP 20, so 20,000. If the price falls to 16 and you buy back for 16,000, you gain 4,000 minus the borrowing cost. If it rises to 25, buying back costs 25,000, a loss of 5,000 plus the cost.

In an ordinary purchase the worst case is the stock going to zero, so you lose what you paid. In a short sale the price can keep rising, so in theory the loss has no ceiling. That is the core difference in risk.

The main rules in Egypt

The Financial Regulatory Authority issued decree 155 of 2026 to regulate this mechanism. As of the latest official update, dated 26 September 2026, it had not launched yet: the FRA chairman said it would start within a few weeks, once the central lending system, the technical link and market training are complete. Before considering it, ask your broker whether it has actually started and whether the firm holds FRA approval.

Cash marginIn cash, at least 50% of the borrowed shares' market value, before borrowing.
Margin callIf total collateral falls to 140% of the borrowed shares' value, the firm asks you to raise it to 150% within two business days. If you do not, it returns the shares without referring to you.
Sale priceIt must be above the last traded price, or equal to it if the last price change was upward.
Borrowing limitA client and related parties may borrow at most 2% of the company's free-float shares.
Watch outIf the price jumps, you may be asked for extra collateral at short notice, and if you do not pay, the position is closed at a loss. The lender also keeps the dividends and other rights attached to the shares.

Continue with the risk lessons

Before any tool that involves borrowing, read the lessons on risk management and position sizing in the FoudaLens academy.

Lessons

Check yourself

1. You short 500 shares at 10 and buy back at 12. Result before costs?

You sold for 5,000 and bought back for 6,000: a 1,000 loss.

2. Why does a short sale have, in theory, no loss ceiling?

Every rise in the price raises the cost of buying back.

Summary

  • You borrow shares, sell them, then buy back and return them, paying a borrowing cost.
  • You gain if the price falls and lose if it rises, with no loss ceiling in theory.
  • Decree 155 of 2026 sets the collateral and limits; ask your broker whether it is available.

Related terms

Short sellingFree floatStop loss

Related lessons

Risk and Portfolio ManagementRisk Management BasicsTrading on the Egyptian ExchangeSettlement in Egypt: T+0, T+1 and T+2
Previous · 10Buying on Margin: How It Works and Its RisksNext · 12IPOs: How to Take Part

Educational content only, not investment advice. Companies and figures in the examples are invented for illustration.