Opening a short position, also called selling short, involves borrowing an asset, selling it, and then buying it back later at a lower price. This strategy aims to profit from a decline in the asset's value.
Understanding short positions is key to effective trading. Traders open a short position when they expect an asset’s price to fall, while a buy position is opened when they anticipate a price increase. The risks and rewards of taking a short position should always be weighed carefully, while potential profits can be made from declining prices, the risk of unlimited losses makes risk management essential.
On FNmarkets, short selling is facilitated through Contracts for Difference (CFDs). Like most platforms, FNmarkets operates with a spread, where the ask (buy) price is higher than the bid (sell) price. This means the price at which you open a position differs from the price at which you close it.
When you sell short, your position starts at the bid (sell) price. It gains value as the asset’s price decreases and loses value if the price rises. To close a short trade, the position is settled at the ask (buy) price.
