A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price.
The Short Position is a technique used when an investor anticipates that the value of a stock will decrease in the short term, perhaps in the next few days or weeks. In a short sell transaction the investor borrows the shares of stock from the investment firm to sell to another investor.
When creating a short position, one must understand that the trader has a finite potential to earn a profit and infinite potential for losses. That is because the potential for a profit is limited to the stock’s distance to zero. However, a stock could potentially rise for years, making a series of higher highs. One of the most dangerous aspects of being short is the potential for a short-squeeze.