Short Position
A short position means you've borrowed and sold an asset, profiting when its price decreases. To close, you must buy back the asset to return what you borrowed. Going short expresses bearish conviction and carries theoretically unlimited risk.
Understanding the Concept
• Profit when price falls; lose when price rises • Unlimited loss potential (price can rise infinitely) • Requires borrowing (margin account) and paying interest • Short squeezes occur when prices rise rapidly, forcing short covering
Real-World Example
You believe Tesla is overvalued at $300. You borrow 100 shares from your broker and sell them, receiving $30,000. If Tesla drops to $200, you buy back 100 shares for $20,000, return them to your broker, and pocket $10,000 profit. If it rises to $400, you'd lose $10,000 plus borrowing costs.
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