What does “short” mean in the stock market?

What does it mean to be short on a stock or to short a stock?

Definition: Short

In finance, being short in an asset means investing in such a way that the investor will profit if the value of the asset falls. This is the opposite of a more conventional “long” position, where the investor will profit if the value of the asset rises.

Origin

This term does not have a definitive origin story. Some believe that to buy short or have a short position evolved naturally as the opposite of a short position or short selling.

The terms sell short and short position seem to have arisen in US stock and commodity markets sometime in about 1850.

In online forums short is used as a term to mean that you believe the price will go down over time and you have placed a bet to that effect. For the sake of simplicity, short generally is betting that the price will go down.

Shorts are trickier than being long. You don’t necessarily buy the stock, but you make a contract that you will supply it to someone else in the future. You are making a bet that you can predict the future price better than someone else.

Shorting a stock requires borrowing the stock. After you borrow the stock, you sell it at the current price. When the price goes down you buy the same stock in order to return it to the original borrower. The short seller makes a profit from the decrease in price.

Confusing, right?

Examples

”Short xyz”

“I am short on xyz, the outlook does not look good.”

“What does short mean?”

An image with the word hashtag short
Shorts make money from a stock going down in price.

Leave a Comment