Going short / Shorting

    By
    Andrey Orlov
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    0

    Going short or shorting refers to the selling of a financial instrument for investment purposes without actually owning the instrument.

    It is a useful term that allows traders to distinguish between those who are selling an asset in order to enter into a market position and those who are selling an asset to close a long position.

    The opposite of going short is going long.

    A trader who short sells will borrow the financial instrument from the broker and sell it on the market with the intention of repurchasing it at a lower price and covering the debt. The profit is the difference between the price they sold it for and the price at which they bought it back.

    If the financial instrument decreases in price and the trader buys the instrument back at a lower price, then they will have made a profit. If the financial instrument increases in value resulting in the traded instrument being bought back at a higher price, then the trader will have to cover the loss from their trading account.

    For example, in the following scenario, a trader entered a sell position es1 at 0.95888 and then exited tp2 with a 48 pip profit at 0.95421.

    Going short: an example

    Let’s say that you are observing the price of oil and you are convinced that the price will fall. You wish to profit from the fall in price.

    You wish to sell 1000 barrels of oil and the current price is $100 — your short sell position would then be $100,000.

    Your broker loans you the asset (oil) and you sell it for $100,000. The barrel price drops to $90, just as you expected. You buy back the 1,000 barrels for $90,000. Going short has made you a profit of $10,000.

    At the close of trade, your broker takes back the oil it loaned to you.