What does a short position mean?
While stock-market punters normally buy shares in the hope the price will go up, taking a "short position" means betting on the price going down. The process is simple. A trader borrows shares from a big City investor who charges a fee for the service.
Shorting, or short-selling, is when an investor borrows shares and immediately sells them, hoping he or she can scoop them up later at a lower price, return them to the lender and pocket the difference. But shorting is much riskier than buying stocks, or what's known as taking a long position.
- Futures Market. Bitcoin, like other assets, has a futures market. However, if you sell a futures contract, it suggests a bearish mindset and a prediction that bitcoin will decline in price. According to the Merkle, "selling futures contracts is an excellent way to short bitcoin."
- This process is called short covering. For example, a trader shorts 1,000 shares of XYZ stock at $20 per share, believing the share price will fall. Instead, the price rises to $25 per share. The trader has substantial loss exposure, so she purchases 1,000 XYZ shares at $25 per share to cover her short position.
- A long (or long position) is the buying of a security such as a stock, commodity or currency with the expectation that the asset will rise in value. In the context of options, long is the buying of an options contract. A long position is the opposite of a short (or short position).
Short selling is the sale of a security that is not owned by the seller or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.
- The short seller achieves this by borrowing the stock from a broker, and immediately selling the stock at its current market price, with the sale proceeds credited to the short seller's margin account. Your net profit will be lower, owing to the costs involved with short selling.
- Day Trading Rules (only in Margin Accounts) Day trading refers to the practice of buying and selling the same securities within the same trading day such that all positions are usually closed that trading day. Day trading using a cash account can easily lead to Good Faith Violations.
- It is an order placed with a broker to buy or sell once the stock reaches a certain price. A stop-loss is designed to limit an investor's loss on a security position. Setting a stop-loss order for 10% below the price at which you bought the stock will limit your loss to 10%.
When an investor uses options contracts in an account, long and short positions have slightly different meanings. Buying or holding a call or put option is a long position because the investor owns the right to buy or sell the security to the writing investor at a specified price.
- The long put option strategy is a basic strategy in options trading where the investor buy put options with the belief that the price of the underlying security will go significantly below the striking price before the expiration date.
- Margin equity is the amount of money that remains in a brokerage margin account, either in the form of cash or securities, after certain items are subtracted. To calculate margin equity, subtract money borrowed from your broker and the value of any in-the-money covered call options you have sold.
- While stock-market punters normally buy shares in the hope the price will go up, taking a "short position" means betting on the price going down. The process is simple. A trader borrows shares from a big City investor who charges a fee for the service.
Updated: 24th September 2018