Glossary
Short Position
Selling borrowed assets, betting on a fall
A short position means borrowing shares, selling them first, and buying them back cheaper later to keep the difference. It is the only way to profit when a price falls.
Borrow and sell at 100, buy back at 70, and 30 is yours. If the price rises instead, you must buy back higher and take a loss. The direction is exactly opposite to ordinary buying.
The greatest danger is that losses have no ceiling. Buying a share risks the capital you put in; shorting a share that doubles or triples loses proportionally more. In theory it is unlimited.
Borrowed shares carry a lending fee, and any dividend paid must be reimbursed to the lender. Costs accumulate over time, so the structure makes holding on for long periods difficult.
Markets credit short selling with correcting overvaluation and supplying liquidity. It also draws criticism for accelerating declines, which is why it is often banned temporarily during crises.