Shorting
What is shorting, short selling or having short position?
Shorting or having a short position is in fact the opposite of having a long position.
You have a long position when you buy a security because you expect it to raise so when you actually own shares.
You have a short position when you sold a security on the market that you don't have by borrowing it from your broker.
How shorting works
​​When somebody expects a stock or ETF to drop, he will go short on it by selling that security. But how can you sell a security that you don’t have? Well by borrowing it from your broker. Afterwards, you then buy it and give them back to your broker. Preferably when the price has dropped.
So shorting is, when all goes according to plan: borrowing a stock or ETF from your broker and selling it when the price is high.
Afterwards, when the price has decreased, you buy the securities on the market and give them back to your broker. The price difference, minus fees of course, is your profit.
​
How risk-full is shorting?
Short selling and having a short position can seem easy money to you, however, be very careful with shorting. With shorting, your possible loss is unlimited.
Short vs Long example
Suppose you buy one Tesla at $1000; so you have a long position. In the worst case scenario, you lose $1000 if Tesla goes bankrupt. So your risk is $1000.
Suppose you go short and sell one Tesla share at $1000. In this case your risk is unlimited. Suppose the Tesla stock increase to $5000 and you still didn’t cover your position, you have a virtual loss of $4000. If you still don’t close your position and the Tesla stock keeps on rising, your loss will do so to.
Depending on your balance in your broker account, the broker can decide to close your position! So be very cautious with going short!
​
How much does shorting cost?
Keep in mind, your broker will only borrow you securities when you have a margin account and of course will charge you money for this service.
​
​