Short Position

Definition

The term short position refers to the practice of selling a security with the expectation that its value will decrease over time.  Short positions apply to stocks, commodities, currency as well as options.

Explanation

An investor can profit from both a decrease in the value of a security as well as an increase.  When a trader expects the value of a security to decrease over time, they are said to be taking a short position in it.  A short trade will profit from a decrease in the price of a security over time, while a long trade will profit from an increase.

The term short is sometimes associated with the term sell.  Shorting is not considered a conventional way of investing, since traders typically purchase an asset they believe will be more valuable in the future.

When used in the context of options, writing a call option is said to be a short position because the trader now holds the right to sell a security.  In the same way, the buyer of a call option is taking a long position.

Related Terms

National Best Offer, National Best Bid, market order, limit order, day order, Market-on Open, Market-on-Close, At-the-Close, Time-in-Force, trailing stop ordersprimary peg orders, market peg orders, long position, alligator spread