Short Position (Short Selling)

You borrow shares, sell them, and profit if the price falls.

Positions & Trade Mechanics Series 65 · Section 3

What is Short Position (Short Selling)?

You borrow shares from a broker, sell them immediately at today's price, and hope to buy them back cheaper later to return them. The difference is your profit. Because a price can rise without limit, the potential loss on a short is theoretically unlimited, and shorting always requires a margin account.

Short Position (Short Selling): a worked example

Short 100 shares at $50, collecting $5,000. Price drops to $30, you buy back for $3,000 and keep $2,000. But if it runs to $120, closing costs $12,000 - a $7,000 loss on a $5,000 trade.

What is the difference between Short Position (Short Selling) and Long Position?

The asymmetry is the whole lesson: a long can lose 100%, a short can lose more than 100%.

Often confused with Long Position - see Short Position (Short Selling) vs Long Position side by side.

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More terms in Positions & Trade Mechanics

Long Position You own the asset and profit when its price rises. Margin Borrowing from your broker to buy securities, using the account as collateral. Cash Account An account where every purchase is paid for in full, no borrowing. Leverage Using borrowed money to increase exposure relative to your own capital. Initial Margin (Reg T) The equity you must put up to open a margin position - generally 50%. Maintenance Margin The minimum equity percentage you must keep in a margin account. Margin Call A demand to add cash or securities after equity falls below maintenance. Short Squeeze Rising prices force short sellers to buy back, pushing prices higher still.

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