Short
A position that profits when the price falls.
Also called: go short · short selling · sell side
Written by Javier Sánchez Ros
In plain language
Shorting means selling an asset you do not own — typically borrowed from your broker — with the intention of buying it back cheaper.
On a short trade the geometry flips. Risk sits above your entry, reward sits below it, and your stop loss belongs above the entry price.
The risk profile is asymmetric in an uncomfortable way. Your maximum profit is capped, because price can only fall to zero, while your maximum loss is theoretically unlimited as price rises.
Worked through
Short 200 shares at $40, and the stock triples
- Proceeds from the short
- $8,000
- Best possible outcome
- +$8,000
- At $120 to buy back
- −$16,000
- Maximum loss
- unbounded
The whole position is asymmetric and the asymmetry runs the wrong way. Everything that can go right is capped at $8,000, because the stock can fall to zero and no further. Everything that can go wrong has no ceiling at all: at $120 the loss is twice what the position was ever worth, and $120 is not an extreme price for a stock that was $40.
It gets worse as it goes against you rather than better. A losing long shrinks — as price falls, the position is a smaller share of the account. A losing short grows, so the exposure expands at exactly the moment the thesis is being disproved.
On top of that sit costs a long never meets: borrow fees that rise as a stock becomes hard to locate, dividends payable to the lender, and the possibility of a forced buy-in if the borrow is recalled, which closes the position whether or not you wanted out.
None of this makes shorting wrong. It makes the stop non-negotiable and the size smaller than the equivalent long, because on this side the market is not bounded by anything.
Seen on a chart
Why it matters
Because losses on a short grow as the position moves against you, disciplined stops and correct position sizing matter more here than anywhere else.
Common mistakes
- Placing the stop below the entry on a short, which inverts the risk math.
- Ignoring borrow fees and the risk of a forced buy-in on hard-to-borrow stocks.
- Shorting into a crowded position without accounting for short squeeze risk.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A position that profits when the price rises.
The number of shares sold short but not yet bought back, often shown as a percent of float.
A predefined exit that closes a losing trade before the loss becomes serious.
The amount of an asset you buy or sell in a single trade.
The capital your broker requires you to post to open and hold a leveraged position.