Short position

When a trader takes a short position, they borrow the asset from someone else, usually a broker, and sell it on the market, with the aim of buying it back later at a lower price. For example, a trader may borrow and sell 100 shares of stock, with the hope of buying them back at a lower price to return to the broker and make a profit.

Short positions are often used by traders who believe that the price of an asset is overvalued or likely to decrease in the future. Short selling can be a high-risk strategy because the potential losses are theoretically unlimited, as there is no upper limit to how much the price of an asset can increase. This means that traders who take short positions must be able to manage their risk carefully and use stop-loss orders to limit their potential losses.