http://en.wikipedia.org/wiki/Short_(finance)In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to that third party. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as the seller will pay less to buy the assets than it received on selling them. The short seller will incur a loss if the price of the assets rises (as it will have to buy them at a higher price than it sold them), and there is no theoretical limit to the loss that can be incurred by a short seller.
I was reading a news article a few days ago (can't remember where anymore) which said one particular country's stock exchange does not allow short selling. It made me think, why is short selling allowed anyway? It's purpose seems to be to drive a share price down, yet driving share prices down seems to be a bad thing for markets?
So why do we allow it, and would we be better off if it wasn't allowed?