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Short Position

Last updated 4th Oct 2022
Disclosure

Definition

The term short position refers to the practice of selling a security with the expectation that its value will decrease over time. Short positions apply to stocks, commodities, currency as well as options.

Explanation

short position
An investor can profit from both a decrease in the value of a security as well as an increase. When a trader expects the value of a security to decrease over time, they are said to be taking a short position in it. A short trade will profit from a decrease in the price of a security over time, while a long trade will profit from an increase.

The term short is sometimes associated with the term sell. Shorting is not considered a conventional way of investing, since traders typically purchase an asset they believe will be more valuable in the future.

When used in the context of options, writing a call option is said to be a short position because the trader now holds the right to sell a security. In the same way, the buyer of a call option is taking a long position.

Related Terms

National Best Offer, National Best Bid, market order, limit order, day order, Market-on Open, Market-on-Close, At-the-Close, Time-in-Force, trailing stop orders, primary peg orders, market peg orders, long position, alligator spread

Moneyzine Editor

Moneyzine Editor