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What is a Short Position?

What is a Short Position?

Frequently Asked Question: What is a Short Position? 

After running this blog for several years, I come across many familiar questions so I am putting together a frequently asked questions page to help answer some of these basic hedge fund questions as well as posting the answers here.

To start, here is a quick question and answer on what is a short position.

Question: I often hear about a hedge fund having a short position or investors saying they are "short" a certain stock.  What is a Short Position?

Answer:  This is a common term in the industry as it describes a common position held by hedge funds who want to profit in a way other than the typical, every-day investment strategy of purchasing an asset (a share, in this case) and holding it in the expectation that it will appreciate in value.  A short position is essentially the opposite of a long position which makes money for the investor if the asset's price appreciates; in a short position, the investor is anticipating a decline in the asset's value and will make money when the stock price falls.  A long/short fund will use a variety of tools including short positions and leverage in order to make a return, not just long positions on assets.

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