A short position is a financial strategy where an investor profits if the price of an asset decreases. It’s the opposite of a long position, where an investor profits if the price increases.
Example of short selling:
Your friend collects rare coins each worth $1000. You have the view that the price of the coin will go down. You pay an interest rate to your friend to borrow some coins which you then sell in the market for $1000 each. You then wait for the price to drop to $500 and then you repurchase the coins and make a profit of $ 500. You then return the coins to your friend.
General things to consider:
- Biggest risk - if the price goes from $1000 to $1200 or more, you lose money.
- Market order - pay what the current price and buy a stock
- Limit order - if the price of stock drops to 15 from 18 then buy.