Going short / Shorting

Going short or shorting refers to the selling of a financial instrument for investment purposes without actually owning the instrument.

It is a useful term that allows traders to distinguish between those who are selling an asset in order to enter into a market position and those who are selling an asset to close a long position.

The opposite of going short is going long.

A trader who short sells will borrow the financial instrument from the broker and sell it on the market with the intention of repurchasing it at a lower price and covering the debt. The profit is the difference between the price they sold it for and the price at which they bought it back.

If the financial instrument decreases in price and the trader buys the instrument back at a lower price, then they will have made a profit. If the financial instrument increases in value resulting in the traded instrument being bought back at a higher price, then the trader will have to cover the loss from their trading account.

For example, in the following scenario, a trader entered a sell position es1 at 0.95888 and then exited tp2 with a 48 pip profit at 0.95421.

Going short

Going short: an example

Let's say that you are observing the price of oil and you are convinced that the price will fall. You wish to profit from the fall in price.

You wish to sell 1000 barrels of oil and the current price is $100 — your short sell position would then be $100,000.

Your broker loans you the asset (oil) and you sell it for $100,000. The barrel price drops to $90, just as you expected. You buy back the 1,000 barrels for $90,000. Going short has made you a profit of $10,000.

At the close of trade, your broker takes back the oil it loaned to you.

Further reading

Learn more about the basics of trading before getting started with your own trading career:

  • This is really hard to understand, how can I sell something I don't own?

    Is there maybe a video on this website in which this gets explained more in dept of how this broker mechanism works?

    It's just that I'm really interested in the theory behind this.

    Isn't it the same as selling your shares, than ''waiting'' for the price to go down and than buy it back once again?
  • Thomas:
    This is really hard to understand, how can I sell something I don't own?

    Is there maybe a video on this website in which this gets explained more in dept of how this broker mechanism works?

    It's just that I'm really interested in the theory behind this.

    Isn't it the same as selling your shares, than ''waiting'' for the price to go down and than buy it back once again?

    hey thomas,


    Basically you sell something you don't own by borrowing.
    So suppose i got 10 shares of apple. i lend them to you (for a small fee ofc)
    You then sell them to somebody , later you buy them back somewhere in the market and hand me back my 10 shares+interest smile
  • Hi Timothy,

    Thanks for your reply, I've re read the example in this lesson. So basically all that the broker earns is the small fee/interest I pay him? I was already wondering why the broker would make such a mechanism. The mechanism itself makes sense to me now. It's that you're able to buy it back at a cheaper price than you initially borrowed it for.
  • yes and do not forget the broker also earns because of the spread wink
  • one question please ,
    if i borrow for example $100 of apples from the broker and i sell them but the price increase so i buy them back with 110$ do the broker take only 110$ from my account or they take also interests even i lost money !!?
  • Hi Nathan,
    In that case the broker would take only $10, not $110. That is how much the price has moved against you. In certain cases the broker takes interest as well. For example in currencies, if you short a pair where the base currency has a higher benchmark interest such as the AUDUSD (AUD: 2.0% USD 0.5%) The broker would take 1.5% (+ commissions) annually or 1.5%/365 per day from the entire position you hold That is if you sell a full lot of AUDUSD, and hold it for one full day, you will pay around $77,000*1.5%/365=$3.16. However if you short the AUDNZD (NZD: 2.25%) you get 0.25% annually. If you trade CFDs the broker pays you interest when you short a stock CFD but also makes you liable to dividend payment if you hold it past the ex-dividend date.
    Hope that helps.
    Regards.
    Peter
  • thank you for your explanation Mr Peter biggrin now i get it
  • thank you for your explanation Mr Peter biggrin now i get it

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