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Short Position
The prospect of the investor is that the price of the stocks will reduce over time, at which point the trader/investor will buy the shares in the open market and go back the shares to the broker which he borrowed them from. Short Position is the speculation/investment plan wherever the investor/trader sold the shares of borrowed the stocks in the open market.

Even as getting into a short position is habitually done with stocks, the same logic of the trading appropriates to other types of assets such as stock options, Exchange-Traded Funds (ETFs), commodities and also currencies. Short-selling puts the trader/ investor into a position of limitless risk and a limited reward. Short-selling is one plan to use if you consider the price of the underlying asset will decrease in the future and investor want to profit from that loss.

Short Position Mechanism

To go short the stocks, an investor/trader have to borrow the shares from their brokerage firm, be in agreement to pay an interest rate as a fee. Once the shares are protected and borrowed, the investor/trader sells them in the open at the current price and receives the cash amount for the trade. At this end, a negative position amount is recorded in the investors/traders account. Afterward, if the price turn down, the investor/trader buys the same quantity of shares in the open market and returns them to the broker. If the shares have turn down, the investor makes a profit. If the shares/stocks increased in price more than the time period, the investor takes a loss and be obliges that money to the brokerage firm.

1 comment:

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