[Grizzl3]

Can someone explain what it actually means to ‘go short’ in trading? I keep seeing the term but not entirely sure how it works.

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[Steve]

To go short (or short selling) means you’re betting that the price of an asset will go down, not up. So instead of buying low and selling high, you’re doing the opposite: you sell high first, then aim to buy low later to profit from the drop.

CFDs are a super common way to short various assets without borrowing them. You could also buy put options or open a margin account to short stocks.

The big thing to remember with shorting is that losses are effectively uncapped because the price can keep rising.

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[Grizzl3]

Thanks for sharing Steve. Is it like I borrow my mate’s PS5 and sell it for $300. Then a week later I buy it back for $200 and return it to my mate? That the idea?

What costs do you pay to ‘short’ something?

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[Steve]

Haha yeah, that’s actually one way to think about it — borrow the PS5, sell it now, buy it back cheaper later, and give it back. Pocket the difference.

As for costs, depends how you short:

• With CFDs, you usually pay a spread and an overnight financing fee (since you’re holding a leveraged position).
• With direct shorting (like through a margin account), you’ll pay interest on the borrowed shares and maybe a borrow fee if the stock is hard to find (called the borrow rate).
• Options (like puts) have an upfront premium, but no borrow fees.

So yeah, shorting isn’t free — you’re paying for the privilege of borrowing or holding that position. Got to factor that into your risk.

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[Grizzl3]

Thanks again Steve. Would you say it’s more expensive to short than go long then?

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[JoJo]

Going short means betting that the price of a security will go down. You make money if the price drops.

Watch “The Big Short” if you want to learn how it works. Cracking film that’s based on real life.

P.s short sellers are often despised because they’re betting against people’s jobs and pensions. Who wants to make money at the demise of others?!

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[Steve]

The Big Short is one of my favorite films ☺️

Short sellers get a hard time in my book. They help expose fraud (Enron 2001, Wirecard 2020, Luckin Coffee 2020 etc etc) and bring balance to hype-driven markets.

Without short sellers, bubbles would inflate even more before popping.

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