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Going Short

As opposed to going long, going short is when investors sell the stock because they believe its price will depreciate, allowing them to buy it back at a cheaper price and make a profit.

A trader can establish two types of short positions including a naked and a covered short. The former involves selling an asset without actually owning it and this method is illegal in the US-based financial markets. Taking a covered short position involves borrowing the shares from a stock loan department and paying borrow-fee while the short position is open. 

When it comes to shorting, it is very important to understand that this technique carries a limited profit potential and an unlimited loss potential. This is why investors are advised to be particularly careful when establishing a short position. 

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