Definition: A short position in trading refers to the strategy of selling an asset, such as a currency pair, stock, or commodity, that the trader does not currently own, with the intention of buying it back later at a lower price. The trader borrows the asset from a broker to sell it on the open market, aiming to profit from a decline in the asset’s price.
Understanding and managing short positions is crucial for traders who seek to profit from falling markets. Short selling allows traders to capitalize on anticipated price declines, but it also carries significant risks, such as unlimited potential losses if the price rises instead of falls. Effective risk management strategies, including setting stop-loss orders and closely monitoring market conditions, are essential for minimizing potential losses and ensuring successful short trading.
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