HomeGlossaryGoing Short

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. 

Go back to our full glossary.

Author: Mircea Vasiu Updated: July 8, 2022