How does a short position work?

The investor holds and sells the shares, seeing a profit or loss corresponding to changes in value. In a short position, an investor borrows shares from their broker and sells them at the current market price. The investor then repurchases the shares at a later time and returns them to the broker, with the intention to pay a lower price later on.

Can you lose a short position if a stock is shorted?

The potential price appreciation of a stock is theoretically unlimited and, therefore, there is no limit to the potential loss of a short position. In addition, shorting involves margin. This can lead to the possibility that a short seller will be subject to a margin call in the event the security price moves higher.

What is a short position & a long position?

In a short position, an investor borrows and sells shares at the current market price, aiming to buy them back at a lower price and return them when the price per share falls. The phrases “going long” and “taking a long position” both refer to an investor’s long-term belief that a stock will rise in price.