The short positions allow traders profit in a bearish market or to protect existing investments.
What are the short positions?
Explanation of short positions
Short positions are to sell an asset that does not have in its portfolio, with the idea that the price will fall and that you can buy it in the future at a lower level. You would earn the difference between the price he sold the assets and the price that you paid to buy them.
When you open a ticket of operation on a platform that will allow selling short, just click on "Sell" rather than on "Buy".
How works short positions?
When you open a short position in shares, for example, those values are provided from a third party, usually a broker, and then sold. The loan takes place automatically when you open the position.
Operation with benefits
Suppose that Bitcoin is currently listed to $5000 per unit. He decides to perform a short 1 bitcoin to $5000 sale.
Soon after, the disappointing benefits make dropping the price of the bitcoin $2500. You can now buy 2 Bitcoin for $2500 each.
Now you can return the Bitcoin the lender who accepts the return of the same number of shares lent, although the market value of the shares has decreased.
You maintain the difference of 1 Bitcoin (less rates / commissions of loan) between the price that has sold the stock and the lowest price that returns them to buy.
Operation with losses
Suppose that Bitcoin is listed on the market at $5000. Decides to make a sale short 1 Bitcoin by 5000 dollars.
Soon after, the Vodafone price rises to $10,000 per Bitcoin. Need to liquidate to meet its obligation to the lender, returning the same number of shares.
Buys 1Bitcoin for $10,000. Then his agent returns them to the lender, which accepts the same number of shares.
You received a loss of $5000 (subtracting the loan fees/Commission), which represents the difference between the price which has sold stock and the higher price at which returns them to buy.
Advantages and limitations
Why do people operates in short?
In the same way that prices go up, you can also download. The short positions allow you to perform operations on a market regardless of the direction that has. Some of the advantages of shorting:
Benefit from a bear market
Short sale provides a way to speculate if you think that a market value goes down. This allows you to add value to its portfolio even in a bear market. Without short selling, it would be very difficult to make money from a bear market.
Some economic events or published financial problems can give rise to a company's value decreases. Short sellers try to find these fluctuations of the market, hoping to profit as the price falls.
To protect other investment or portfolio
If you have a series of long positions, you can choose to protect them with short positions. This is known as coverage.
The advantage of coverage is that it allows you to minimize the risk of its portfolio, like that have a policy of insurance for your home or your car. The coverage is different from speculation, given that the intention is to reduce the risk rather than increase it.
