Definition: Short, or short selling, refers to the trading strategy where a trader borrows an asset, such as a currency pair, stock, or commodity, from a broker and sells it on the open market, planning to buy it back later at a lower price. The trader aims to profit from a decline in the asset’s price.
Understanding and effectively implementing short selling is crucial for traders looking to capitalize on declining markets. Short selling allows traders to profit from downward price movements, providing opportunities even in bearish market conditions. However, it also involves significant risks, such as unlimited potential losses if the asset’s price rises instead of falls. Proper risk management, including setting stop-loss orders and closely monitoring market conditions, is essential for successful short selling and minimizing potential losses.
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