Trades that involve selling a financial instrument without first borrowing the instrument or insuring that it already exists, as would be done in ordinary short sales. It is considered an illegal practice because traders must borrow the instrument or insure it can be borrowed before selling it short. This kind of trading allows manipulators to apply downward pressures on stock prices without consideration for normal market mechanisms. Usually, cases of “fail to deliver” shares are an evidence of naked short selling.
It is also known as naked shorting.
