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Glossary
Short selling
Definition
In forex trading, going short means buying the variable (secondary) currency of the forex currency pair. For example, if you were going short on GBPUSD, you would be buying USD by selling GBP.
For equities, going short is selling a security without owning it, as opposed to going long where you are taking ownership of the security by buying it. A short position benefits from a decline in market prices.
What is short selling?
Short selling is an investment strategy where a trader borrows shares of a stock or other asset that they believe will decrease in value. They sell these borrowed shares at the current market price. Later, they aim to buy back the shares at a lower price, return them to the lender, and pocket the difference.
Why is short selling important to consider when trading?
Short selling is important as it allows traders to profit from declining markets or individual securities. It's a way to speculate on negative market movements or to hedge against downside risk in a portfolio. However, short selling involves significant risks, as losses can be unlimited if the asset's price rises. Understanding the risks and timing of short selling is crucial for traders to effectively use this strategy in their market activities.