What is a short position (short position)?

A short position is an investment technique used by investors when they think the value of a stock may fall. First, investors borrow shares from brokers and sell them in the market. The investor then buys the stock back and returns it to the broker, and if the price of the stock falls, the investor makes a profit.

Where have you heard of short positions (short positions)?

The 2015 film the Big Short this makes this investment strategy more popular. In the Oscar-winning film, a small number of traders who experienced the financial crisis of 2007-2008 took short positions on mortgage-backed securities. At the time of the crisis, these traders made large profits.

Short positions you need to know (short positions)

Investors can borrow shares from brokers by paying interest, or they can sell short contracts for difference (CFD), which are not borrowed and are entirely spread trading.

Short equity positions have unlimited risk and limited returns. For example, if an investor sells a borrowed stock at £ 10 per share, the maximum profit he can make after any fees is £ 10 if the price of the stock drops to £ 0. If the price of the shares is higher than 10 pounds, the investor will suffer a loss when the shares are bought back and returned to the broker.

The opposite of a short position is long Position, I .e., investors buy and sell stocks based on expectations of appreciation.

Investors with short positions are bearish on the market, while investors with long positions are bullish on the market.