In trading, short describes a trade that will incur a profit if the asset being traded falls in price. It is also often referred to as going short, shorting or sometimes selling.
Shorting is the opposite of going long, or trading to incur a profit if your market increases in price.
The most well-known method of shorting is short selling. There are two main methods of short selling:
- When a trader borrows an asset they do not own from a broker and sells it on the market. Usually the borrowing and selling of the asset is taken care of by the broker.
- Derivatives such as CFDs enable traders to open short positions that do not require borrowing the underlying asset.
There are other ways of opening short positions. Digital 100 binaries offer a simplified form of option that do not require the trader to own the underlying asset, for instance.
As an asset could theoretically increase in price indefinitely, short selling requires careful risk management to prevent losses from overrunning.