A short, or short position (in English, Short position), is a trading strategy in which a market participant profits from a fall in an asset's price rather than from its rise. The mechanism works as follows: the trader borrows the asset from the exchange, sells it at the current price, and then, after the expected decline, buys it back cheaper and returns the loan. The difference between the selling price and the buyback price is their income.
Betting on a fall is traditionally done by so-called bears — market participants who wager on a downward move, as opposed to bulls, who count on growth. Short positions are often opened over short time horizons and frequently with the use of leverage, which substantially increases both potential profit and risk.
Why a short is considered risky
- With a short, the loss is theoretically unlimited: an asset's price can rise indefinitely.
- The use of leverage can quickly lead to liquidation of the position.
- Sharp upward reversals in the market are especially dangerous for holders of short positions.
For this reason, short trades require strict risk management, the mandatory use of stop-losses, and a good understanding of the market situation. This is a tool more for experienced traders than for beginners.
