Short Position

A trading position, which increases in value as market prices fall. The term can refer to an individual transaction; for example a trader who has sold coffee futures is said to have a short position in coffee. Or it can refer to a traders' entire book; a trader may have made a number of purchases and sales in a number of markets but if the value of his sales exceeds the value of his purchases, his net position is short. Short positions are usually taken out to hedge against downside risk rather than in the hope of profiting from an expected price fall. A short position can be closed out through the purchase of an equivalent amount of securities. Buying to cover a short position is known as short covering.

See also: Short-Selling, Hedging, Short Squeeze