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
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.
