Naked short selling is the practice of short-selling a tradable asset without first borrowing the asset from someone else or ensuring that it can be borrowed. In a regular short sale, a short-seller must borrow shares before they can sell them. In a naked short sale, the seller enters a sell order to essentially sell non-existent shares, with plans to borrow them later to deliver them to the buyer. Naked shorting is illegal in the U.S. since it can be highly risky and lead to excessive market manipulation.

When shares are not borrowed within the clearing time period and the short-seller does not tender shares to the buyer, the trade is considered to have "failed to deliver". In recent years, a number of companies have been accused of using naked shorts in aggressive efforts to drive down share prices, sometimes with no intention of ever delivering the shares. Naked short selling can affect the liquidity of a particular security within the marketplace. When a particular share is not readily available, naked short selling allows a person to participate even though they are unable to actually obtain a share.

Despite being made illegal after the 2008–09 financial crisis, naked shorting continues to happen because of loopholes in rules and discrepancies between paper and electronic trading systems. Some market analysts and participants have argued against the ban on naked short selling, claiming that it can serve a purpose in determining the true value of a stock in the marketplace when the stock has low liquidity and, therefore, a limited number of shares available that can be borrowed from a broker and sold short.