Short Position

A short position is a trade initiated by a trader selling a financial instrument they do not necessarily physically own, speculating on a future price decline in order to buy it back later at a lower price and pocket the difference as profit.

How it works: The trader sells the instrument at the current price. If the price subsequently falls, they buy it back at a lower price, realizing a profit equal to the difference. However, if the price rises against their expectations, they incur a corresponding loss.

Importance for the trader:

• Allows profiting from falling markets, not just rising ones.
• Expands trading opportunities across various market conditions.
• Can also be used as a tool to hedge against existing long positions.

Common mistakes:

• Believing the risk is limited just like in a long position, whereas theoretical losses can be substantial if the price continues to climb.
• Neglecting to place a stop-loss when opening a short position.
• Confusing the short-selling mechanics of CFD markets with the physical sale of assets.

A short position complements a long position, giving traders the flexibility to capitalize on moves in both directions. How to open it on the EVEST platform: A trader opens a short position on EVEST by clicking the "Sell" button for a specific financial instrument, expecting its price to decline later with the goal of repurchasing it at a lower price to secure the difference as profit, with the ability to set stop-loss and take-profit orders directly upon opening the trade.

When to open it: A short position is suitable when technical or fundamental indicators show clear weakness in a specific instrument, such as breaking below a key support level or the release of negative economic data driving the price downward.

Risks: Theoretically, losses in a short position can be very large if the price continues to rise without clear limits, especially in markets that lack strict volatility controls, making stop-loss management critically important.

Additional common mistakes: Some traders make the mistake of opening short positions during a strong uptrend under the pretext of anticipating an imminent reversal without confirmed technical signals, while others neglect to follow news related to the traded asset that could trigger sudden price surges.

Relationship to risk management: Given the theoretically unlimited risk associated with short positions, setting a strict stop-loss becomes an absolute necessity rather than an option. The risk management tools available on the EVEST platform help traders calibrate the size of their short positions in line with their available capital and acceptable risk tolerance.