A short, or short position, is a directional trading or investment strategy where the investor sells shares of borrowed stock in the open market. The expectation of the investor is that the price of the stock will decrease over time, at which point the he will purchase the shares in the open market and return the shares to the broker which he borrowed them from.

Short-selling puts the investor into a position of unlimited risk and a capped reward. Short-selling is one strategy to use if you believe the price of the underlying asset will decrease in the future and you want to profit from that loss. To go short a stock, an investor must borrow the shares from their brokerage firm, agreeing to pay an interest rate as a fee. Once the shares are secured and borrowed, the investor sells them on the open market at the current price and receives the cash for the trade.

Long (or Long Position)

At this point, a negative position amount is recorded in the investors account. Later, if the price declines, the investor buys the same amount of shares in the open market and returns them to the broker. If the shares have declined, the investor makes a profit.

What does it mean to have a 'long' or 'short' position? — MahiFX

If the shares increased in price over the time period, the investor takes a loss and owes that money to the brokerage firm. He decides to short-sell shares of Company XYZ. Very often, if not all the time, this cash is not accessible and remains frozen in the account.

At this point, the investor purchases shares at market price and returns them to the broker. Learn more about this dynamic strategy by reading When To Short A Stock.

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin? This Mistake Could Cost You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam.

Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Short or Short Position Share.

Short Sale Buy To Cover Short Covering Buy To Open Average Up Short Market Value Long or Long Position Days To Cover Rebate. Content Library Articles Terms Videos Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator.

Work With Investopedia About Us Advertise With Us Write For Us Contact Us Careers.

Get Free Newsletters Newsletters. All Rights Reserved Terms Of Use Privacy Policy.